A comparative study of gcc banks technical efficiency

Abstract EN

The study estimates the technical efficiency of 52 GCC banks using two different methods.

Using the earning assets, loans and investments, as outputs and fixed assets, labor and financial capital as inputs, the paper finds that there is ample room for GCC banks to improve their technical efficiency.

At the country level, banks in Bahrain and Saudi Arabia are found to be more technically efficient than banks in the rest of the GCC countries.

The argument is that bank characteristics as well as the environment in which the banks in these two countries operate are more conducive to better efficiency.

The results also show that a larger bank size and higher share of equity capital in assets are associated with better efficiency.

However, the weak link found between technical efficiency and profitability on one hand, and between technical efficiency and date of establishment, on the other, lend further support to the argument that the general economic environment in which GCC banks operate might have affected their efficiency in addition to their own characteristics.

Overall, the results point to the fact that in order for GCC banks to be able to cope with a more competitive environment, over-banked and recessionary markets, they need to operate within a more enabling and efficiency-enticing regulatory framework in addition to consolidating their resources notably, through mergers and strategic alliances with domestic, regional or foreign banks.