Bank Efficiency in Africa

This study examines the efficiency of the financial sector in African countries. It aims to investigate if “The financial institutions are capable of distributing the economic resources efficiently”. Empirical evidence supports a sound intermediation process and efficiency in the banking system (Vittas, 1991; Howard & Haynes, 2001). In this paper, the cost function is estimated with the use of a single-output and multi-input approach for the analysis. The output consists of loans, other earning assets and non-interest revenue which are used individually for the estimation. The input is deemed to be made up of capital, deposits and labour (overhead). The analysis is further extended by calculating the x-inefficiency which is found to be within the range of 24 - 26%. The study made postulations in respect of the causes for the inefficiency and the possible remedies. The study comprises of Commercial banks from about forty seven African countries for a period of ten years.