Technical and economic efficiency measurement of African commercial banks using data envelopment analysis (DEA)

The paper aims to analyze the Technical Efficiency of 70 Commercial banks from 19 African countries from 2009-2020. Using the Data Envelopment Analysis (DEA) method of the two main approaches, Variable Return to Scale (VRS) and Constant Return to Scale (CRS) technique on a Panel Data. We find that African banks have a higher efficacy assessment with the VRS than the CRS technique, thus, with a Pure Technical Efficiency (PTE) score than Technical Efficiency (TE) . Our findings show that the majority of the banks are operating at very low levels of efficiency (not technically efficient), and inability to optimize the conversion of bank assets and liabilities into loan production for customers. Furthermore, the banks are operating inefficiently in scale, economic, and allocative manner due to mismatches in scale of production. Considering these findings, the implications of these inefficiencies extend to the overall economic development and financial stability of the region.