Efficiency of Commercial Banks in East Africa: A Non Parametric Approach

Abstract

This paper employs Data Envelopment analysis (DEA) to estimate the relative efficiency of selected 58commercial banks operating within the East African Community, namely Tanzania, Kenya, Uganda, Rwanda andBurundi. From 2008 to 2011. The estimated results shows sharp decline of Technical efficiency from 0.81 (2008)to 0.56 (2009) there after showing an increasing trend of technical efficiency in 0.73 (2011). Under BCC andCCR model the number of efficient commercial banks which shows in their four years with the score 1, wereTanzania (42), Kenya (66), Uganda (61), Rwanda (11) and Burundi (21). The findings show that mostcommercial banks in east Africa are operating under a decreasing return to scale. Therefore inefficient utilizationof input resources (technical inefficiency) could be one of the reasons for the inefficiency of commercial banksin East Africa; therefore banks should make use of underutilized resources and reduce operating expenses to berelatively efficient in the production frontier.

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