AN EMPIRICAL INVESTIGATION ON EFFICIENCY OF DOMESTIC AND FOREIGN BANKS IN TANZANIA: NON-PARAMETRIC APPROACH

Bank efficiency, Data envelopment analysis, Technical efficient, Pure efficient. Determinants of banks’ efficiency

Abstract

This paper aims to examine the efficiency of domestic and foreign banks in Tanzania. The sample size consisted of 16
domestic and foreign banks for 2012-2021. The paper used Data Envelopment Analysis (DEA) approach to measure
banks’ efficiency. In addition, the Ordinary Least-Squares (OLS) regression analysis was used to check the overall DEA
results' robustness to examine the banks' efficiency determinants. The findings indicated that on average foreign banks
had exhibited a higher efficiency level compared to domestic banks. The empirical results from this paper indicated that
foreign banks have exhibited a higher efficiency level than domestic banks for all three efficiency scores and were
consistent with a Global advantage theory. The regression analysis results indicated that banks’ size, capital adequacy,
non-performing loans, management efficiency, and banks’ liquidity were the most significant determinants of banks’
efficiency. The paper compares the efficiency of 16 domestic and foreign banks in Tanzania using the DEA approach.