The Profit Efficiency of Commercial Banks in Zimbabwe: An Application of Data Envelopment Analysis

Abstract

The study estimates the profit efficiency of the commercial banks in Zimbabwe using Data Envelopment Analysis method. The study sample constituted 11 Commercial Banks for the period 2009-2014. The results suggest that Commercial Banks in Zimbabwe are profit inefficient. The average profit efficiency of the banks for the period was 80 per cent. This result means that an average bank operated at a profit efficient level of 80 per cent relative to the best performing bank in the sample. This implies that the best performing bank used fewer resources in generating profits compared to the average bank in the sample. The lowest level of inefficiency during the study period was experienced in the first half of 2009 as a result of the challenges banks experienced in transitioning from hyperinflation to stable economic environment. Banks had to incur costs in changing banking systems to adapt to the multi-currency system. The results further gives credence to the argument that Zimbabwean banks are inefficient hence the wide spreads between lending rates and deposit rates which characterised the system between 2009 and 2014.