Foreign Ownership, Performance and Efficiency in the Banking Sector in Uganda and Botswana

Abstract

This paper evaluates the recent performance and efficiency of foreign and domestic owned commercial banks in Uganda and Botswana. Financial ratio analysis indicates that for the most part, foreign-owned banks in Uganda and Botswana have had a higher return on equity (ROE) and return on assets (ROA) than domestic- owned banks. Data envelope analysis (DEA), ordinary least squares (OLS) and least absolute error (L1) regressions are used to assess production efficiency at three bank branches of two banks in Uganda and Botswana over the period 1991-1999. The efficiency values derived from the DEA model indicate that while production efficiency at the three branches increased over the period of the study, the foreign-owned bank branches are more efficient than the domestic- owned bank branch. The findings imply that there is positive relationship between DEA efficiency values and financial measures of profitability. The findings also support the hypothesis that, in an environment with low automation, a large proportion of current account holders (relative to other bank products) has an adverse effect on production efficiency at bank branches.