MEASURING BANK EFFICIENCY IN DEVELOPING COUNTRIES: THE CASE OF WAEMU (WEST AFRICAN ECONOMIC MONETARY UNION)

Abstract

This paper offers to measure WAEMU banks efficiency and its determining factors, after the banking system reforms from 1993 to 1996. At this purpose, we use Data Envelopment Analysis method (DEA) for assessing technical efficiency and Stochastic Frontier Analysis (SFA) for cost efficiency. Our results suggest similar evolutions for the two types of efficiency for every WAEMU countries apart from Ivory Coast and Burkina Faso. A detailed analysis per banking shareholder’s equity group reveals that local private banks are the most efficient ones, followed by foreign and then state owned banks. Despite technological changes that occurred in the banking system, Malmquist index shows that the increase of technical efficiency is much more the fact of scale efficiency change than that of the incorporation of technological innovations. Lastly, we found that WAEMU banks efficiency is sensitive to variables like financial soundness, the ratio of bad loans per country, the banking concentration and the GDP per capita.