Bank productivity in Africa

Abstract

Purpose – The purpose of this paper is to provide a total factor productivity index for the African banking industry. It also investigates the impact of some internal and external determinants affecting bank productivity. Design/methodology/approach – The biennial Malmquist productivity index and various regression models (ordinary least squares, Tobit and truncated bootstrapped regression) are employed in analyzing data from 120 banks in 24 African countries from 2007 to 2012. Findings – The results indicate a general decline in productivity of banks in Africa, largely due to inadequate technological progress. State banks are found to be more productive than foreign and private banks. The regression analyses showed that non-executive directors, leverage, management quality, credit risk, competition and exchange rate have significant impact on bank productivity, but ownership and CEOduality do not. Practical implications – The results have implications for management of banks, governments and regulators. It shows the need for policy and investments that improve state-of-the art technology. The findings also seem to suggest poor management practices in input usage, especially in operational management, as well as costs emanating from non-interest sources. Bank managers need to address these deficiencies to improve productivity in African banking markets. Originality/value – A major contribution of this paper is the productivity index provided for the African banking industry. This study is also the first to apply the biennial Malmquist to analyze productivity in the African banking industry.