Technical Efficiency and Productivity Growth of Saudi Banks

Abstract

This article is an attempt to calculate the Data Envelopment Analysis (DEA)efficiency scores and productivity indices of banks in Saudi Arabia. Our DEA results indicate that technical inefficiency emerges from both scale as well as pure technical inefficiencies. The results on Malmquist Productivity Index (MPI)reflect an improvement in average productivity of banks. However, the major source of productivity gain was the efficiency change relative to technological change. The banks in the Kingdom appear to have succeeded in catching up with the best performance, even though the average scores on technical efficiency (TE)stood beyond optimality. Implications of the study reveal that countries like Saudi Arabia need to accelerate and diversify resource mobilization efforts extensively, suggesting banks to go beyond deposits as the main source of resource mobilization. The existing monopolistic type of banking sector needs to be transformed into a competitive one, enabling banks to look for optimality and competitiveness simultaneously. There is also a need to diversify the sources of gross domestic product (GDP)both nationally and internationally. This would immune the banking system from the swings emerging through changes in the oil prices and quotas.