Modeling the Banks Efficiency in Tanzania: Panel Evidence

Abstract

The paper was aimed at evaluating the efficiency of banking system in Tanzania. The study employed panel data for the period of 2006-2011. The paper utilized data from all 45 banks in Tanzania; the paper used efficiency measures, financial ratios, parametric and non-parametric approaches. In the context of parametric approach the study employed the Trans log and cob Douglas to test the profit efficiency. The findings of the study  revealed that the three models to exhibited results, each model reflects and reported its efficiency score categories and the author conclude from the empirical literature that the all the three models do exhibit different efficiency score. Furthermore the study noted that the banks within the peer group were operating at higher level of efficiency but the industry at large still operates at inefficiency level but operate at higher level of profit efficiency due higher level of interest spread, large banks have been more efficient then the medium banks followed by the Non-Banking Financial institutions and finally the medium banks.

Key words: Parametric and Non parametric Approach, Trans log, Cobb Douglass, Tanzania.