Evaluating Efficiency of Commercial Banks in Tanzania and identifying efficiency drivers

Abstract

Using data envelopment analysis (DEA), the purpose of this paper is to evaluate the efficiency of commercial banks operating in Tanzania in the year 2006 to 2013. The empirical findings reveal that, banks operate at 95.9% level of efficiency i.e. inputs could be reduced by 4.1% without sacrificing output if all banks were efficient as benchmark banks identified by DEA. The observed inefficiency of banks is due to poor input utilization i.e., managerial inefficiency. Large banks found to be the most efficient banks. The multivariate regression analysis using Tobit analysis highlights that; asset quality, management efficiency and liquidity are the most significant determinants of banks efficiency.