Measuring efficiency, effectiveness and performance of Tanzanian commercial banks: A two stage analysis

Abstract

The study intends to evaluate the efficiency, effectiveness and performance of Tanzanian commercial banks, the two stage analysis derived from the DuPont model was used to obtain efficiency and effectiveness components, later on Innovative Data Envelopment analysis was used to obtain Performance estimates. We used the concept of efficiency and effectiveness to obtain performance estimates, since both efficiency and effectiveness are mutually exclusive and influence each other. Our results revealed the lowest performance score experienced through the period of study is 2008 which similar to previous estimates of efficiency scores. Generally our results indicate, the overall performance estimates scores were quite low with respect to efficiency and effectiveness scores. With respect to bank groups, the largest foreign banks (LFB) was more efficient trough the entire period of the study, however the smaller bank's (SB) effectiveness and performance was so quite higher compared  to the rest of the group. The Large Domestic banks (LDB) hold the last position in efficiency, effectiveness and performance. The achievement of LFB is attributed by tremendous expansion in the country, through strategic exploitation of potential business areas, by learning the weakness of LDB which have branches throughout the country, and therefore results in high operating costs. On the hand the correlation matrix between efficiency, effectiveness and performance reveals performance is more related with effectiveness rather than performance.

Key words: DuPont; Data Envelopment Analysis; Efficiency, Effectiveness, Performance