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Modeling the efficiency of Tunisian and Moroccan banks using the SFA approach

Modeling the efficiency of Tunisian and Moroccan banks using the SFA approach The purpose of this paper is to evaluate and compare bank efficiency between the two Maghreb countries, Tunisia and Morocco, over the period 2005–2014.Design/methodology/approachThe authors follow the stochastic frontier analysis, where the preferred cost model is determined via various hypothesis tests based on the maximum likelihood estimation. Then, the first and the second derivates of the cost function are employed to determine scale elasticities, scale inefficiencies and technological progress.FindingsSpecification tests indicate that the Fourier Flexible form provides better fit to the data set. Further, the estimated model shows that Tunisian and Moroccan banks’ efficiency is positively affected by banking service quality, but negatively influenced by both bank capitalization and GDP growth. Overall, Moroccan banks are found to be the most efficient despite the decrease of efficiency levels in both countries. Additionally, foreign banks have a higher scale inefficiency and, therefore, a lower cost efficiency. Equally, the technical progress raises banking costs in both countries, providing a decrease in efficiency scores.Practical implicationsThe findings of this study provide novel insights to Tunisian and Moroccan policy makers on the relevance of the smaller banks’ consolidation to improve bank efficiency by achieving unrealized economies of scale. Also, more reforms should be implemented in Tunisia to reduce non-performing loans.Originality/valueTo the best of the authors’ knowledge, this study is the first which offers a comparison between Tunisian and Moroccan banks to clarify the sources of inefficiency and to make strategic decisions. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Productivity and Performance Management Emerald Publishing

Modeling the efficiency of Tunisian and Moroccan banks using the SFA approach

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1741-0401
DOI
10.1108/ijppm-03-2018-0099
Publisher site
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Abstract

The purpose of this paper is to evaluate and compare bank efficiency between the two Maghreb countries, Tunisia and Morocco, over the period 2005–2014.Design/methodology/approachThe authors follow the stochastic frontier analysis, where the preferred cost model is determined via various hypothesis tests based on the maximum likelihood estimation. Then, the first and the second derivates of the cost function are employed to determine scale elasticities, scale inefficiencies and technological progress.FindingsSpecification tests indicate that the Fourier Flexible form provides better fit to the data set. Further, the estimated model shows that Tunisian and Moroccan banks’ efficiency is positively affected by banking service quality, but negatively influenced by both bank capitalization and GDP growth. Overall, Moroccan banks are found to be the most efficient despite the decrease of efficiency levels in both countries. Additionally, foreign banks have a higher scale inefficiency and, therefore, a lower cost efficiency. Equally, the technical progress raises banking costs in both countries, providing a decrease in efficiency scores.Practical implicationsThe findings of this study provide novel insights to Tunisian and Moroccan policy makers on the relevance of the smaller banks’ consolidation to improve bank efficiency by achieving unrealized economies of scale. Also, more reforms should be implemented in Tunisia to reduce non-performing loans.Originality/valueTo the best of the authors’ knowledge, this study is the first which offers a comparison between Tunisian and Moroccan banks to clarify the sources of inefficiency and to make strategic decisions.

Journal

International Journal of Productivity and Performance Management – Emerald Publishing

Published: Jun 11, 2019

Keywords: Banks efficiency; Environmental variables; Fourier Flexible form; Scale economies; C1; G21; G3

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