Abstract
Purpose: The purpose of this study was to analyze Performance Measurement, Growth and Structure of Commercial Banks in East AfricaMethodology: The study used cross country data analysis of 100 commercial banks and collected secondary data from annual published audited financial statements for the period 1997-2011Results: The results indicate that the OPM which combines productivity and profitability captured a high percentage of similar banks when the top 20 commercial banks were ranked; 80% for return on assets, 60% for profit margin and 55% for net interest margin. A positive and significant relationship between economic growth and performance measures was confirmed. Similarly market structure had a positive relationship with the performance. The results further showed an insignificant relationship with financial structure which conforms to the financial structure theory.Policy recommendation: The study recommended that the OPM should enable central banks to assess the performance levels of banks and be able to detect those that are underperforming and take corrective measures to either improve productivity, profitability or both. For policy makers in the EAC secretariat, the measure will enable comparison on the performance of banks in East Africa for subsequent integration to the monetary union
Highlights
Banks are the main part of the financial sector in any economy performing valuable activities on both sides of the balance sheet
The study developed the overall performance measure (OPM) which was a product of single performance measure (SPM) and ROE
When the top 20 banks were ranked using the OPM as the base indicator, the results showed that 12 banks (60%) are in the top 20 when compared against the profit margin (PM), 16 banks (80%) for return on assets and 11 banks (55%) for Net Interest Margin (NIM)
Summary
Banks are the main part of the financial sector in any economy performing valuable activities on both sides of the balance sheet. The Financial Times (2013) have a similar definition where a commercial bank refers to a financial institution providing services for businesses, organizations and individuals. Banks facilitate the payments and settlement systems and support the smooth transfer of goods and services. They ensure productive investment of capital to stimulate the economic growth. It is this banking system that constitutes the largest part of the financial system in most countries, especially in emerging and developing markets (Beck and Dermiguc-Kunt, 2009)
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