Are the best African banks really the best? A Malmquist data envelopment analysis

Abstract

This paper aims to examine whether the African commercial banks selected as the best African banks by Global Finance Magazine really are the best. Panel data envelopment analysis (DEA) was used, as well as the Malmquist total factor productivity index, to distinguish productive banks from unproductive banks. Nineteen commercial banks were selected from the 30 best African banks as identified by the Global Finance Magazine. Of the 19 banks, five were found to be unproductive. Bank productivity was attributed mainly to technological change, and different methods marked different results, for example, the regional winner bank (Standard Bank of South Africa) selected by Global Finance Magazine ranked ninth in this study, whereas the Bank Windhoek Limited, Namibia, ranked first. The study confirms the applicability of DEA for the banking industry. The model shows variability among the banks’ efficiency and productivity and provides different results to the Global Finance Magazine’s best bank selection. For example, the Standard Bank of South Africa, which is selected as the regional winner, is now ranked ninth under the DEA Malmquist’s total factor productivity. The study shows that the DEA model can be applied not only for analysing the firm’s efficiency but also for objective rating, ranking and selecting best banks.