Decomposition of the Technical Efficiency: Pure Technical and Scale Efficiency of the Financial System

9 June 2017
Publication Type: Policy Brief, Working Paper
JEL Code: C61, D61, E23, G21

The study investigated the technical efficiency of the commercial banks in Zimbabwe during the period 2009-2015. The study entailed the decomposition of the technical efficiency into pure technical and scale efficiency to understand the sources of the technical inefficiency of the commercial banks in Zimbabwe. To accomplish the task the study sampled eleven commercial banks of which six are domestic and the other five foreign banks. The study used the data envelopment analysis method. The results of the study revealed that commercial banks in Zimbabwe are technically inefficient with an efficient score of 82.9 percent. The average pure technical and scale efficiency scores were 96.6 percent and 85.6 percent respectively. The results imply that technical inefficiency of the Zimbabwean commercial banks is mainly a result of scale inefficiency emanating from decreasing returns to scale. The deduction is that commercial banks in Zimbabwe are operating at below their optimum capacity hence have scope to increase their operations in order to improve on technical efficiency.

Series title: Working paper 683
1 June 2017
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