Abstract
The study investigated the technical efficiency of the commercial banks in Zimbabwe during the period 2009–2015. The study entailed the decomposition of the technical efficiency into pure technical and scale efficiency to understand the sources of the technical inefficiency in the commercial banks in Zimbabwe. To accomplish the task, the study sampled 11 commercial banks of which 6 are domestic and the other 5 are foreign banks. The study used the data envelopment analysis method. The results of the study revealed that commercial banks in Zimbabwe are technically inefficient with an efficiency score of 82.9%. The average pure technical and scale efficiency scores were 96.6% and 85.6%, respectively. The results imply that technical inefficiency of the Zimbabwean commercial banks is mainly a result of scale inefficiency emanating from decreasing returns to scale. The deduction is that commercial banks in Zimbabwe are operating at below their optimum capacity and hence have scope to increase their operations in order to improve on technical efficiency.
Highlights
Banks are vital institutions in any society as they significantly contribute to the development of an economy through facilitation of business
The results indicate that in Zimbabwe, on average, banks are relatively better off in pure technical efficiency (PT) compared to scale efficiency
The study evaluated the technical efficiency of the commercial banks in Zimbabwe using the method of data envelopment analysis (DEA)
Summary
Banks are vital institutions in any society as they significantly contribute to the development of an economy through facilitation of business. The analysis of the banking sector performance assists in assessing the effect of government policies such as deregulations, mergers and interest rate restrictions among others, and how they affect the economy while helping banks to reduce wastage in resources, enhance competition and reduce market prices of financial products (Berger & Humphrey 1997). There is literature on bank efficiency for other countries and studies carried out produced diverging results (Kumar & Singh 2015; Li 2014; Marwa & Aziakpono 2015; Roy 2014; Singh & Fida 2015), but studies in the Zimbabwean context remain limited This motivated the current study to contribute to the literature, drawing lessons from the Zimbabwean banking sector. The ‘Conclusions’ section concludes the study and proffers some recommendations
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