DETERMINANTS OF OPERATING EFFICIENCY OF NIGERIA’S BANKING SECTOR

Abstract

Few empirical types of research on determinants of operating efficiency of the Nigerian banking sector have constrained bank managers in reconstructing and formulating better policies and valuable management strategies to address recurring inefficiencies. As a concern, this study closes the gap by examining the determinants of operating efficiency of Nigeria’s banking sector for the period 2002 to 2019. It employed the Data Envelopment Analysis (DEA) model and Tobit Regression model. Descriptive statistics were employed where the Jarque-Bera statistic was used to confirm normality and the Likelihood ratio to confirm the existence of no panel level effects The relatively low robust standard errors confirmed no existence of heteroscedasticity problem. The results from the DEA for the dependent variable (operating efficiency) showed that the Nigerian banking sector was both efficient and inefficient during the period. The Tobit regression estimation results show that bank size and intermediation ratio were positive and significant in determining banking sector operating efficiency while overhead cost ratio, credit risk and inflation rate were negatively significant in determining operating efficiency. The study recommends that bank management should deploy creative strategies in cutting down overhead cost, engages in proper credit evaluation, ascertain customer creditworthiness before extending credit facilities, increase bank size as operating condition demands, strengthened intermediation activities and engage in proper forecasting of the inflation rate. The CBN on the other hand should develop adaptive policy measures to ensure sustained regulation, supervision and monitoring of banking activities.