Productivity of the banking sector: A case study in Kyrgyz Republic

Abstract

This paper conducts a performance analysis by measuring productivity and efficiency change in the Kyrgyz Republic's banking sector during 2002-2009. The study employs data envelopment analysis to construct Malmquist indices and break them down into technical efficiency, technical change, and pure technical efficiency change, scale efficiency change and total factor productivity change components. Two input factors - capital and deposits - as well as two output variables - interest revenue and credits - were analyzed to explore the performance of eighteen commercial banks, and to understand how bank ownership and size of bank affect productivity change. The results show that productivity in the banking sector fell during the sample period. Medium-sized banks with foreign capital were found to be the best performers in productivity growth, while large banks showed decreasing productivity during the sample period. Consistent with previous findings discussed in the literature, this study suggests that technological improvements can sustain positive productivity growth.