Determinants of commercial banks cost Efficiency: evidence from commercial banks in Ethiopia

Abstract

This study attempted to identify the factors which determine commercial banks cost efficiency: evidence from commercial banks of Ethiopia. Thus, the study will help through informing the determinants of commercial bank’s cost efficiency which could assist the managers to give attention to these factors in attaining the desired efficiency. From the target population, among the 31 commercial banks thirteen banks were selected as a sample size. To select the sample banks purposive sampling techniques was used. The time coverage of the study was twelve years from 2011 to 2022. This study deployed descriptive and explanatory research design. The study was conducted based on secondary source of data. The data were collected from the National Bank of Ethiopia (NBE) and from the individual commercial banks. The study was adopted descriptive statistics like mean, standard deviation, minimum and maximum to describe variables in the Stochastic Cost Frontier Model. Statistical analyses was carried out using econometric analysis which is Stochastic Cost Frontier Model was used to test the relationships among variables. The result shows that there is a positive insignificant relationship between bank size and cost efficiency. On the other hand, the capital adequacy ratio (CAR), & the real GDP with positive and significant coefficient, shows a positive relationship between these variables and total cost, which contributes to lower the banking efficiency. Thus, banks can improve their cost efficiency by way of improving their ROA, ROE, the method of advances. In addition they have to increase the share of capital by boosting banking investment operation.