Operational Efficiency and Productivity Change in Cross-country Commercial Banking Industries: Evidence From South Asia

Abstract

South Asia (SA) predominantly consists of developing economies with massive growth potential in their banking industries. To this end, this paper examines the efficiency and productivity change in 136 commercial banks (CBS) of 6 countries: Afganistan, Bangladesh, India, Nepal, Pakistan and Sri Lanka in South-Asia from 2013 to 2019. Data envelopment analysis (DEA) method is employed to identify the efficiency frontier for South Asian CBS (SA-CBS). DEA-based Malmquist productivity index (MPI) is used to determine whether a change in total factor productivity of SA-CBS is due to technical efficiency change or technology change. Findings indicate that the average technical efficiency of SA-CBS is 62.45 percent, which reveals that 37.55 percent of inefficiency exists under the study period. In addition, results show that technical inefficiency in SA-CBS is attributed to pure technical inefficiency rather than scale inefficiency. Results further indicate a marginal decline in productivity over the study period, where the average total factor productivity score is 0.998. This deterioration is mainly attributed to technical efficiency decline since the average technological change increased, thus causing a negative impact on the total factor productivity.