This study investigated the Nigerian Banks†Efficiency Performance. The period studied was 2005-2009.In addition to the above, the extent of the effect of the bankâ€s fixed assets, operating expenses and total deposit on their efficiency was investigated. The effect of the bankâ€s efficiency on their profitability was also examined. In recent years emphasis is now on using frontier analysis methods in measuring bank efficiency instead of using financial ratios. In frontier analysis, the institutions that perform better relative to a particular standard are separated from those that perform poorly. Such separation is done either by applying a parametric or non parametric frontier analysis to firms within the financial services industry.This study employed the Non parametric Data Envelopment Analysis (DEA)under the assumptions of Constant return to scale (CRS),Variable Return to Scale (VRS) and Scale Efficiency(SE) to estimate the efficiency scores of the banks .A bank with a score of 1 is efficient, while a score below 1 means the bank is inefficient. The tests of the four hypotheses were carried out using Vector autoregressive Analysis (VAR). The findings of the study revealed that GTB was the most efficient bank and it has the least reduction in inputs (4.93%) needed to produce the same amount of output. Moreover it remained efficient throughout the years 2006-2009.Overall, the worst performers are Unity bank, Afribank and UBA. Also the banks did not achieve full efficiency under the CRS, VRS and SE in any of the five years. The findings on the hypothesis tested revealed that fixed assets have a negative relationship with efficiency, operating expenses has no long run relationship with the efficiency variable and total deposit does not affect efficiency. Lastly, efficiency has a positive significant relationship with profitability. This study therefore recommend that the banks that are not efficient should study the operations of GTB the best performer to see if could be adopted to improve their efficiency and the banks should moderate their use of inputs as they could have used fewer amount of inputs to achieve the same level of output. Finally, the acquisition of fixed assets should be reasonable. This is to prevent it from reaching a point where it will impact negatively on the bankâ€s efficiency.
TABLE OF CONTENT
Title..page - - - .i Certification - - ..---ii Declaration - - - .iii Dedication - - - .-iv Acknowledgements - - - --v Table of Content - - -vii List of Figures - - ..xii List of tables - - ..--xii List of Abbreviations - - - -xiii Abstract - - - xiv
CHAPTER ONE: INTRODUCTION 1.1.Background of the study - .1 1.2.Statement of the Problem - .. 4 1.3.Research Questions - .7 1.4.Objectives of the study - .7 1.5.Hypothesis of the study - - - - 8 1.6.Significance of the Study - . 8 1.7.Scope - . 10 1.8.Limitation of the Study - - 10 1.9.Outline of the study - - 11 1.10Definition of Terms - . 11 CHAPTER TWO:LITERATURE REVIEW 2.1. Introduction - .. 14 2.2 The Conceptual framework on Efficiency - - - . 15 2.3 Efficiency measurement according to Farrell - - ..16 2.3.1 Technical efficiency - - - - .. 18 2.3.2 Technical and Allocative (price) efficiency - - ..20 2.4 Efficiency measurement in banks defined - - - . 23 2.4.1 Revenue Efficiency - - - - .. 24 2.4.2 Cost Efficiency - - - - 25 2.4.3. Profit Efficiency - - - - .26 2.4.3.1 Standard profit Efficiency - ..27 2.4.3.2 Alternative profit x-Efficiency - 28 2.4.3.2.1 Substantial Unmeasured Differences in Quality of Output - - 29 2.4.3.2.2 Output is Not Completely Variable - - - 31 2.4.3.2.3 Output Markets are Oligopolistic - - - 31 2.4.3.2.4 Output Prices are not Accurately Measured - - - 32 2.5.. The Return to Scale Concept - - ..33 2.6 Theoretical Framework on Efficiency Measurement - - .. 34 2.6.1.
