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Working Paper Series - Measuring Technical Efficiency of Kuwaiti Banks



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Measuring Technical Efficiency of Kuwaiti Banks


Volume : 0

No : 0

ISSN : WPS0101

Publisher : Arab Planning Institute - Kuwait

Author (s) : Imed Limam 

Published Date : 1/1/2001


Contents :
A stochastic cost frontierapproach is used to estimate technical efficiency of Kuwaiti Banks. Usingearning assets as output and fixed assets, labor and financial capital asinputs, I have found that banks produce earning assets at constant returns toscale and hence have less to gain from increasing scale of production notably, throughmerging with other banks, than from reducing their technical inefficiency.Except for the largest two banks, NBK and GB, there is large room for improvingtechnical efficiency of most of the banks. In order to account for differencesin technical inefficiency between banks, I have linked the adopted measure ofinefficiency to some relevant variables. The results show that larger banksize, higher share of equity capital in assets and greater profitability areassociated with better efficiency. In lights of the results, it is argued thatthe only way for banks to better meet the challenge of increased competitivepressure from more powerful banks and future foreign entry would be to increasetechnical efficiency. For this, banks ought to appoint skilled bankers andmanagers, improve, through continuous training, the skills of existingemployees, de-link management from ownership, enlarge the share of equity intotal assets and broaden the base of ownership. Privatization of banks couldalso improve corporate governance that leads to better efficiency through lowerintermediation margins and spreads and a wider range of services

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