Benchmarking Banking Efficiency Using a Meta-Profit Function

Abstract

This paper applies the meta-frontier approach to investigate the profit efficiency level of the banking sector in the MENA region. This approach enables the assessment of the banking efficiency while considering technological gap between the investigated countries and the whole banking industry. We integrate the country-specific conditions in the designed model (macro-financial, macro-economic, regulatory and banking characteristics). Empirical results were obtained through a dataset of seven countries, namely Tunisia, Morocco, Algeria, Egypt, Jordan, Lebanon and Turkey, over the period from 1991 to 2011. The analysis supports the view that profit efficiency varies from one country to another, and the technological gap plays an important role in explaining the ability of the banking sector in one country to compete with others. The results of the efficiency scores corrected by technological and environmental heterogeneities led us to conclude that Jordanian banks were the most efficient while the Lebanese banks enjoyed a very advantageous banking technology. This work eventually emphasizes relevant recommendations to improve the performance of the banking sector.