Open Access Article SciPap-1020
Technical Efficiency in the Nigerian Banking Sector: A Stochastic Production Frontier Approach
by Enoh Hilda Olele 1,*

1 Department of Economics, Faculty of the Social Sciences, Delta State University, P.M.B. 1, Abraka, Delta State , Nigeria

* Authors to whom correspondence should be addressed.

Abstract: In recent times, the optimizing behavior of banking firms has come under intense scrutiny because it is believed that it has implications for firm’s overall efficiency. This is the reason why it became important in this study to evaluate the technical efficiency of banking firms in Nigeria. A stochastic production frontier analytical framework was adopted in analyzing the data obtained from the Nigerian Stock exchange factbooks for a period of 1993-2013 on ten of the consolidated banks. The variables used include investment security (output) and loans & advances, share capital and labour (inputs). Findings from this study revealed among others the existence of inefficiency in the production of investment security. Specifically, the technical efficiency associated with the production of investment security was 41 percent which indicates an underlying inefficiency of 51 percent. The study therefore recommends the adoption of diversified strategies by banking firms to improve the technical efficiency in the production of investment security.

Keywords: Technical Efficiency, Bank Surveillance, Portfolio Choice, Investment Security, Stochastic Production Frontier

JEL classification:   C13 - Estimation: General,   D24 - Production • Cost • Capital • Capital, Total Factor, and Multifactor Productivity • Capacity,   G11 - Portfolio Choice • Investment Decisions,   G24 - Investment Banking • Venture Capital • Brokerage • Ratings and Ratings Agencies,   G28 - Government Policy and Regulation

SciPap 2020, 28(1), 1020

Received: 16 October 2019 / Accepted: 29 April 2020 / Published: 30 April 2020