Measurement of Commercial Bank Efficiency in Ethiopia: an Application to Data Envelopment Analysis (DEA)

Abstract

This research was conducted to measure the relative technical, cost, revenue and profit efficiency of the Ethiopian Commercial Banks, using banks level data of 18 commercial banks for the period covered 2005 to 2016. The study used financial data of the banks extracted from the audited annual financial reports and data from the international banking data base (Orbis Data Base). Data Envelopment Analysis (DEA) have been used, with the inputs and outputs of the banks selected following the intermediation approach. The result shows that among four banks namely Commercial bank of Ethiopia, Adis International bank, Zemen bank & Enat bank are the most efficient banks in terms of Technical Efficiency, and are found to be on the DEA frontier under both input & output orientations. Under Cost Efficiency, the giant Commercial Bank of Ethiopia, Adis International Bank and Debub Global Bank are found to be the most efficient ones, and on the DEA frontier. Finally, the research finding shows that Commercial Bank of Ethiopia and Adis International Bank are 100% efficient compared to other participants under both revenue & profit efficiency, followed by Zemen Bank.

Keywords: Cost Efficiency, Data Envelopment Analysis, Ethiopia Banking, Measurement of Efficiency, Profit efficiency, Technical Efficiency