Abstract
The paper investigates whether deregulation and economic reforms have transformed the MENA banking sector into a more productive and efficient sector. This is the first study to cover a large sample of 11 MENA countries for an extended and recent period (1999-2012). Initially, this paper estimates the productivity and efficiency of MENA commercial banks using Malmquist DEA to estimate productivity (TFP), technological and technical efficiency, and scale efficiency change in order to investigate to what extent banking productivity in MENA economies has improved during the study period. Then, Tobit model is employed to examine the impact of bank and macroeconomic variables on the total factor productivity of MENA commercial banks. The obtained MPI results suggest that commercial banks operating in the Gulf countries have exhibited productivity progress mostly due to the technological progress rather than efficiency change. Results also suggest that expenses preference behaviour would help banks to enhance their productivity in the examined period and MENA countries. Whilst banking productivity is improved by financial reforms and technological progress, such findings overall do not indicate that foreign participation or state ownership lead to enhance productivity of banks, whilst suggesting that a number of sound policies should be implemented taking into account the characteristics of banking sector in MENA countries.
Highlights
In the absence of significant role of efficient and well-developed capital market, the banking sector in MENA region plays a leading role in the economic development via providing funds to private and public sectors investments and by financing government deficits
The annual total factor productivity exhibited an increase of 14.3%, which seems to suggest that commercial banks in Oman witnessed improvements in total factor productivity during years 2000, 2001, 2002, 2003, 2004, 2007, 2008 and 2012
The 14.3% increase in total factor productivity of the Omani commercial banking sector is related as shown to 14.2% increase in technological change, which reflects that commercial banks have benefited from expending their capital investments on technology
Summary
In the absence of significant role of efficient and well-developed capital market, the banking sector in MENA region plays a leading role in the economic development via providing funds to private and public sectors investments and by financing government deficits. Studies in emerging and developing markets have been looked at investigating banking productivity in Malaysia, India, China, Turkey and MENA countries In this regard, Isik and Hassan (2003) employed DEA using MPI to examine how financial reforms affect total factor productivity of Turkish banks over the period 1981-1990. As previously mentioned at the beginning of this paper, due to the absence of efficient and well-developed stock exchange markets, the banking sector in this region still plays a leading role in the intermediation process between users and suppliers of funds In this respect, Ramanathan (2006) employed MPI to assess the comparative performance of selected MENA banks over the period 1980-1999, findings telling that technological progress have contributed to improvements of total factor productivity. The methodology of this paper encompasses measurements of the productivity and efficiency performance of MENA commercial banks for the period 1999-2012
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