Technical and allocative efficiency of commercial banks in Ethiopia

Figures & data

Table 1. Summary statistics. Panel A. Distribution of commercial Banks by their relative market share in the industry.

Bank category	Number of Banks(observations)	Assets^a (%Share)	Loans & Advances^a (%Share)
CBE	1 (32)	991,319 (56)	287,008.5 (36)
Group 1	3 (80)	327,243 (18.6)	225,388.4 (28)
Group 2	4 (90)	225,346 (12.8)	149,401.8 (18.7)
Group 3	5 (70)	151,910.6 (8.6)	95,797.7 (12)
Group 4	6 (53)	65,123.7 (3.7)	41,617.4 (5)

^a Amount Measured in Millions of Ethiopian Birr.

Source: computed from 2021 annual final audit report.

Panel B. Market Share distribution of commercial banks by their deposit mobilization, capital and branch offices.

Bank category	Deposit Mobilization^a (%Share)	Capital & Reserve^a (%Share)	Number of Branches (%Share)	Operating years
CBE	735,296 (54)	53,826.5 (37)	1920 (25)	33
Group 1	265,718.6 (19.5)	34,836.2 (37)	2055 (27)	26-28
Group 2	189,974.2 (14)	25,696.1 (24)	1714 (22)	18-25
Group 3	121,500.8 (9)	21,149.5 (17.6)	1229 (16)	13-17
Group 4	50,135.5 (3.7)	10,223.4 (14.5)	682 (10)	5-12

^a Amount Measured in Millions of Ethiopian Birr.

Source: computed from 2021 annual final audit report.

Table 2. Summary statistics on output quantities, input prices, and cost.

Variables	Mean	Standard deviation
Total loans and Advances (${\mathrm{y}}_1$)^a	52,467.03	400,814.7
Total investments (${\mathrm{y}}_2$)^a	59,795.47	378,393.7
Non-interest income(${\mathrm{y}}_3$)^a	4,512.05	26,790.71
Price of deposits and borrowed funds (${\mathrm{w}}_1$)	0.03	0.03
Price of labour(${\mathrm{w}}_2$)	0.02	0.01
Price of physical capital (${\mathrm{w}}_3$)	0.86	0.47
Total cost($\mathrm{E})$^a	10,257.06	57,400.54
Actual cost share of deposit	0.42	0.12
Actual cost share of labour	0.28	0.07
Actual cost share of physical capital	0.30	0.11
Total capital and reserves/total asset $(\mathit{\text{fk}})$	0.15	0.08
Liquid assets/total asset $(\mathit{\text{lq}})$	0.20	0.10
Loan-loss provisions /total loan $(\mathit{\text{pl}})$	0.12	0,16

Number of Observations 325.

^a Measured in Millions of Ethiopian Birr.

Table 3. Parameter estimates of fourier flexible shadow cost function.

Variables	Coef	Se	Variables	Coef	Se
Constant	−70.1536***	21.9504	${\mathit{\text{lnw}}}_1{\mathit{\text{lnw}}}_2$	−0.1231***	0.001
${\mathit{\text{lnw}}}_1$	0.1646***	.0103	${\mathit{\text{lnw}}}_1{\mathit{\text{lny}}}_1$	0.0029***	0.0007
${\mathit{\text{lnw}}}_2$	0.3174***	0.0096	${\mathit{\text{lnw}}}_1{\mathit{\text{lny}}}_2$	0.0037***	0.0009
${\mathit{\text{lny}}}_1$	6.5546***	1.7039	${\mathit{\text{lnw}}}_1{\mathit{\text{lny}}}_3$	0.0090***	0.0011
${\mathit{\text{lny}}}_2$	0.3697	0.6069	${\mathit{\text{lnw}}}_2{\mathit{\text{lny}}}_1$	0.0030***	0.0007
${\mathit{\text{lny}}}_3$	18289	1.9033	${\mathit{\text{lnw}}}_2{\mathit{\text{lny}}}_2$	−0.0092***	0.0008
$\mathit{\text{lnpl}}$	0.2945***	0.0207	${\mathit{\text{lnw}}}_2{\mathit{\text{lny}}}_3$	0.0135***	0.0011
$\mathit{\text{lnfk}}$	−0.8694***	0.2069	${\mathit{\text{lny}}}_1{\mathit{\text{lny}}}_2$	−0.0415	0.0328
$\mathit{\text{lnlq}}$	0.5202***	0.1477	${\mathit{\text{lny}}}_1{\mathit{\text{lny}}}_3$	−0.0369	0.0288
${\mathit{\text{lnw}}}_1^2$	0.1598***	0.001	${\mathit{\text{lny}}}_2{\mathit{\text{lny}}}_3$	−0.0996***	0.0367
${\mathit{\text{lnw}}}_2^2$	0.1480***	0.0011	$t$	−0.1367***	0.029
${\mathit{\text{lny}}}_1^2$	−0.2124***	0.0474	${\mathrm{t}}^2\mathrm{ }$	0.0013***	0.0003
${\mathit{\text{lny}}}_2^2$	0.1333*	0.073	$\mathit{\text{Dep}}\_t$	0.0012	0.0015
${\mathit{\text{lny}}}_3^2$	0.0806	0.1183	$\mathit{\text{Lab}}\_t$	−0.0056***	0.0013
${\mathit{\text{lnpl}}}^2$	0.0234***	0.0017
${\mathit{\text{lnfk}}}^2$	−0.3677***	0.0965
${\mathit{\text{lnlq}}}^2$	0.3267***	0.0947

Notes: Notations $t$ and $t^2$ denote linear and quadratic time trends, respectively. Dep_t and Lab_t are included to capture the cost of AI of funds and labour inputs over time, respectively.

***significant at 1%, **significant at 5%, *significant at 10%.

Table 4. Estimates of efficiency parameters.

Bank category	TE	AI
		Funds $({\mathbf{X}}_1)$	Labor $({\mathbf{X}}_2)$
CBE	1.00***	0.8156***	1.6786***
	(0.0016)	(0.1632)	(0.1391)
Group 1	0.66***	0.8678***	1.6102***
	(0.0016)	(0.167)	(0.1423)
Group 2	0.70***	0.8970***	1.6192***
	(0.0016)	(0.1698)	(0.1447)
Group 3	0.81***	0.9135***	1.6539***
	(0.0017)	(0.1767)	(0.1504)
Group 4	0.91***	0.9609***	1.6815***
	(0.0018)	(0.1805)	(0.1537)

Standard errors in parentheses.

***significant at 1%, **significant at 5%, *significant at 1%.

Table 5. Cost of economic, technical, and allocative inefficiency.

Bank Categories	Cost of EI (%)	Cost of TI (%)	Cost of AI (%)
CBE	13.33	0	13.11
Group 1	37.18	34.43	4.50
Group 2	34.44	30.19	5.83
Group 3	24.50	19.56	6.56
Group 4	19.32	9.23	10.76
All Private banks	30.08	25.02	6.53
All banks	28.43	22.55	7.18

Table 6. RE and MLE estimates of technical efficiency of banks.

Bank Categories	RE	MLE
CBE	1.00	1.00
Group 1	0.90	0.90
Group 2	0.93	0.93
Group 3	0.95	0.94
Group 4	0.98	0.96

Table

Variables	Coef	Se	Variables	Coef	Se
coslnw1	0.0158	0.0574	sinlny2	0.57	1.1349
coslnw2	−0.1020*	0.0532	sinlny3	0.4249	0.6042
sinlnw1	−0.2821***	0.0606	coslny1lny2	0.2268	0.4
sinlnw2	−0.3248***	0.0586	coslny1lny3	1.3245***	0.3513
coslnw1lnw2	−0.1777***	0.0311	coslny2lny3	0.384	0.3843
sinlnw1lnw2	−0.1627***	0.0432	sinlny1lny2	1.1889***	0.3637
coslny1	3.8565***	1.0537	sinlny1lny3	0.0725	0.2586
coslny2	−1.7503	2.384	sinlny2lny3	−0.6619	0.6942
coslny3	1.3104	1.5646	coslny1lny2ln3	−0.0577	0.1356
sinlny1	−1.8386***	0.6412	sinlny1lny2ln3	0.6193***	0.1416

Data availability statement

Data will be available upon request from the corresponding author, [Bisrat Getinet Chane].