Measuring the Technical Efficiency of the Banking Sector (Economic Growth in Ghana)

Abstract

This study assesses the technical performance and overall productivity change factor after consolidation and the subsequent system of banking reforms to stabilize the sector before the effects of the financial crisis. The study uses both non-parametric data wrapping (DOS) and the Stochastic Boundaries (SFA) parametric approach using the Malmquist Productivity Index and the Fault Component Production Function to determine whether there has been a significant change in efficiency in a sample of 12 banks representing about 80 percent of Ghana's total bank assets. The theoretical approach of the remedy is used when selecting input and output variables. The input variables to be included are total deposits, total capital and operating costs, including staff costs, and production variables are loans and operating income that are responsible for weighted returns, such as interest income or cost-based revenues. The results suggest that the average technical efficiency within the SFA and the general change in production, per the factor of productivity at the DEA will decrease as bank production shifts to interest-only income or cost-based revenues. Although the size is different, both the SFA and DEA are managing in a similar direction for technical efficiency and overall factoring production. The impact of the study suggests that policymakers should be concerned about the bank's ability to arbitrarily generate cost-based revenues, which is a high long-term cost to the banking system.

Keywords: Data Envelopment Analysis, Malmquist productivity index, technical efficiency