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Efficiency of Tunisian Banks: A Study Using Data Envelopment Analysis (DEA)
Background
The Tunisian banking sector comprises 30 banks, with 23 being onshore and 7 offshore. Among these, there are six publicly-owned conventional commercial banks and three specialized in Islamic banking.
Sample Selection
This study focuses on the three largest publicly-owned conventional banks and the seven largest private ones, which collectively hold over 85% of total bank branches, employ about 83% of total banking staff, account for an annual average of 87.3% of total banking assets, generate 89.2% of total gross banking income, provide 88.7% of total loans by banks, and collect 90.2% of total deposits in banks.
DEA Model
The study uses a three-input/four-output DEA model where:
- Labor
- Physical capital
- Financial capital (deposits) are inputs to produce:
- The bank’s portfolio
- Loans
- Interbank loans
- Off-balance sheet commitments as outputs
Validation of DEA Model
The Efficiency Contribution Measure proposed by Pastor et al. (2002) is used to validate the selected DEA model, indicating that candidate variables are deemed relevant if more than 15% of bank-year observations have their technical efficiency changed by at least 10%.
Input and Output Variables
These are obtained from published balance sheets and income statements of each bank in annual reports released by the Tunisian Professional Association of Banks and Financial Institutions (TPABFI).
Descriptive Statistics
The study presents descriptive statistics for the input and output variables, highlighting the role played by Tunisian banks as intermediaries between savers and borrowers.
Determinants of Technical Efficiency
Technical efficiency estimates can be used to identify determinants in a censored Tobit model or to regress technical inefficiency directly against its determinants. However, it is essential to correctly specify the model to avoid biased parameter estimates and questionable inferences.