An evaluation of the performance of Saudi banks

Abstract

This study investigates the efficiency and productivity of Saudi banking sector consisting of 10 banks (3 large, 4 medium, 3 small) during the period, 2001-2010. It begins with the estimation of technical efficiency based on input-oriented Data Envelopment Analysis (DEA) approach. For a comprehensive analysis, the technical efficiency is decomposed into the product of pure technical efficiency and scale efficiency. This is followed by measuring cost efficiency which is the product of technical and allocative efficiencies. Finally, the Malmquist Productivity Indices (MPI) are computed to examine total factor productivity (TFP) change over the sample period. TFP change is decomposed into the product of technical efficiency change (catch-up) and technological change. The results reveal a technical efficiency score of 85% for Saudi banking sector. The best performance is shown by small banks followed by medium and large banks respectively. The average cost efficiency for the entire Saudi banking sector is 83.5%. The main source of cost inefficiencies is the technical inefficiency. The TFP change showed an increase of 2.1%, coming mainly from the progress of technological change (TC).

Date of Award	2012
Original language	English