Albanian Banking Sector Productivity Using Malmquist Index

Abstract

Measuring banks’ performance and productivity needs special attention, as for Albania, the banking industry remains the central part of the financial system. This paper estimates the productivity change in Albanian banking sector, using the Malmquist productivity index. The dataset includes the end of year data of 16 banks that operate in Albania, for the period 2006-2017. This paper aims to bring new insights on the productivity of Albanian banking sector, as this is a rarely treated topic in literature. The purpose of this paper is to measure Malmquist productivity index and its components, efficiency change and technological change for banks in Albania. The results show that Albanian banking sector for the period under analysis, experienced a decrease in productivity, which mainly is due to the lack of technical improvements. On the other side, efficiency has improved during this period, and this result is driven by improvements in pure efficiency and scale efficiency. The medium size banks have shown a total factor productivity increase, compared to large and small banks.

Keywords: banking sector, productivity, Malmquist productivity index