The Technical Efficiency of Nigerian Banks: Determining Efficiency

The Technical Efficiency of Nigerian Banks: Determining EfficiencyIn 2003, the percentage of efficient banks declined to 22% which is the lowest of the four periods used. The worst bank (Omega Bank) has an efficiency level of 22.2%. Of the inefficient banks, 28.21% have their efficiency scores above the industry average of 64%. The decline in the percentage of efficient banks in this period is surprising being that liberalization had been done for eighteen years. Probably, most of the emerging and old banks were under capitalized. May be most of the banks were affected by the low technological advancement evidenced by low capital labour ratio. This meant that liberalization alone may not be enough to positively affect the efficiency of the individual banks. Thus, the consolidation exercises are welcome developments.
Fifteen banks of the 67 banks used in the analysis were used in the four periods. Of these, three were consistently efficient in all the four periods. These are First Bank, Citi Bank and Indo Bank. UBA was consistently efficient in the first two periods but declined in efficiency in 2000. It however, picked up again in 2003 reestablishing its efficiency. Investment Trust, Hallmark and Metropolitan banks were also consistently efficient in the periods they were used.
Some banks were declining in their efficiency all through the four periods. In this category are Afri Bank which was efficient in 1985 but suffered 56.5% efficiency loss by 2003; and MBC which experienced 60.9% loss in efficiency by 2003. This suggests that with the competition occasioned by liberalization some banks that were efficient before liberalization could not cope with the competition. Other banks that experienced efficiency loss through out the periods are Tropical, Credit Lyonnas, Citizen, Cooperative Development, Diamond, Eco Bank, Trade, Gate way, Access, Intercontinental, Magnum, Manny, and NAL. The surprising thing is that some of these banks are making waves in the banking industry today e.g. Access, Diamond and Eco Banks; while others could not survive the Soludo consolidation exercise e g Trade bank, Hallmark and Metropolitan banks.
Some banks which started out with very low efficiency level in 1985 showed continuous efficiency gain and were efficient by 2003. These include IMB International bank, Nigeria-American bank and Equity bank. Other banks in this category are Pacific, Inland, Gulf and Habib banks. Zenith also showed a lot of improvement in efficiency though its efficiency level was fluctuating. The rest of the banks had their efficiency level fluctuating throughout the period. These results suggest that banks as individual firms reacted differently to the liberalization programme. It also shows that banks are at different levels of efficiency in Nigeria. further