Efficiency of Botswana's financial institutions: a data envelopment analysis

Abstract

This article examines technical and pure technical efficiencies of 10 major financial institutions in Botswana during the period 2001 to 2006 using Data Envelopment Analysis (DEA). To obtain more robust and reliable results, the sensitivity of our efficiency indices were put to test by choosing three alternative approaches in specifying the mix of inputs and outputs. The empirical results indicate that (a) no matter which approach and year are taken into consideration, Bank of Baroda (BoB) and First National Bank (FNB) (which are both foreign banks) and Botswana Savings Bank (BSB) (which is a publicly owned institution) are consistently among the most efficient institutions and Botswana Development Corporation, African Bank Corporation and National Development Bank (NDB) are the least efficient ones; and (b) the most efficient banks are either small or large institutions in terms of their asset sizes. One can conclude that financial institutions can further enhance efficiency by adopting Self-Service Technologies (SSTs) such as telephone and Internet banking, which can substantially reduce their service delivery costs.