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

This paper employs Data Envelopment analysis (DEA) to estimate the relative efficiency of selected 58 commercial banks operating within the East African Community, namely Tanzania, Kenya, Uganda, Rwanda and Burundi. 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 and CCR model the number of efficient commercial banks which shows in their four years with the score 1, were Tanzania (42), Kenya (66), Uganda (61), Rwanda (11) and Burundi (21). The findings show that most commercial banks in east Africa are operating under a decreasing return to scale. Therefore inefficient utilization of input resources (technical inefficiency) could be one of the reasons for the inefficiency of commercial banks in East Africa; therefore banks should make use of underutilized resources and reduce operating expenses to be relatively efficient in the production frontier.