Effeciency of the Banking System

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EFFICIENCY OF TANZANIA BANKING SYSTEM INDUSTRY BEFORE AND AFTER ECONOMIC REFORM
PARTICIPANT
S/N| NAME| REG.NUMBER| DEGR. PROG| SIGNATURE|
1| SHAYO, AMEDEUS S.| T/UDOM/2010/04019| BCOM (FN)| |

A TERM PAPER PRESENTED IN BANKING FINANCIAL MANAGEMENT (AF 312) HELD AT UNIVERSITY OF DODOMA LECTURE ROOM 5 SSH ON 13TH DECEMBER 2012

Introduction
Efficiency in banking has been defined and studied in different dimensions including: (i) scale efficiency, which refers to relationship between the level of output and the average cost of Private Banks; (ii) Scope efficiency, which refers to relationship between average cost and production of diversified output varieties; and (iii) Operational efficiency, a wide concept sometimes referred to as x-efficiency, which measures deviation from the cost efficient frontier that represents the maximum attainable output for the given level of inputs. With reference to various definitions, inefficiency is therefore a multifaceted concept with several meanings depending on the perspective in which it is used. Efficient banking system reflects a sound intermediation process and hence the banks’ due contribution to economic growth. If private banks are functioning efficiently, monetary policies are likely to be effective. This study is motivated by the fact that, though banking sector is the largest part of the financial system in Tanzania, little is known about its efficiency status. Secondary time series data are used in empirical analysis of banks’ efficiency. Non-parametric Data Envelopment Analysis (DEA) model is utilized in estimation of technical and scale efficiency, while x-inefficiency is estimated using multi-product translog cost function. Though banks were not full efficient in all respects, they performed fairly well during the 1998-2004 period. Nevertheless, the major conclusions show that banks in Tanzania still have reasons to improve their performance.

Efficiency of Tanzania Banking Industry before...
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