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<p>Despite a series of financial reforms, African banking sectors still show traits of underdevelopment manifested through low levels of depth, financial access, efficiency, competition, and high episodes of instability. Provoked by these stylised facts, this study investigates the source(s) and drivers of high cost and profit inefficiencies of 548 banks in 48 African countries over the period 2000–2014 using bank level data and a heteroscedastic four-error-component model which disaggregates overall inefficiency into transient and persistent components. Our sample of 548 commercial banks constitute approximately ninety percent of total market capitalisation of the African banking industry. Evidence show that African banks are more efficient in profit maximisation than in cost minimisation, and persistent cost (profit) inefficiency exceeds transient cost (profit) inefficiency suggesting, supporting the quiet-life hypothesis. Furthermore, we find evidence of transient (persistent) cost and profit bank efficiency post the 2007/08 global financial crisis (GFC) being higher (lower) compared to that prior to the financial shock. Compared to pre-GFC period, the lower post-GFC overall cost and profit efficiency is an epitome of still persistent structural problems across African banking sectors. Thus, inefficiency of African banks is attributed more to structural rigidities than to adaptation problems. As an antidote, we suggest structural reforms to combat persistent cost and profit inefficiencies of African banks by reducing increasing bank competition and building crisis firewalls through micro-and-macroprudential policies. Monetary and financial sector integration was also found to have a bearing on the cost and profit efficiency of African banks. Lastly, some prominence of economies of scale across African banking sectors was observed, which demands raising scale capacity and bank consolidation strategies to fully harvest welfare gains emanating from eradicating existing excess capacities.</p>

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Is bank inefficiency transient or persistent? Evidence from Africa

  • 期刊论文

  • 出版模式：

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  • 发表日期：

    2026年7月31日

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  • Canicio Dzingirai,
  • Tendai Gwatidzo

摘要

Despite a series of financial reforms, African banking sectors still show traits of underdevelopment manifested through low levels of depth, financial access, efficiency, competition, and high episodes of instability. Provoked by these stylised facts, this study investigates the source(s) and drivers of high cost and profit inefficiencies of 548 banks in 48 African countries over the period 2000–2014 using bank level data and a heteroscedastic four-error-component model which disaggregates overall inefficiency into transient and persistent components. Our sample of 548 commercial banks constitute approximately ninety percent of total market capitalisation of the African banking industry. Evidence show that African banks are more efficient in profit maximisation than in cost minimisation, and persistent cost (profit) inefficiency exceeds transient cost (profit) inefficiency suggesting, supporting the quiet-life hypothesis. Furthermore, we find evidence of transient (persistent) cost and profit bank efficiency post the 2007/08 global financial crisis (GFC) being higher (lower) compared to that prior to the financial shock. Compared to pre-GFC period, the lower post-GFC overall cost and profit efficiency is an epitome of still persistent structural problems across African banking sectors. Thus, inefficiency of African banks is attributed more to structural rigidities than to adaptation problems. As an antidote, we suggest structural reforms to combat persistent cost and profit inefficiencies of African banks by reducing increasing bank competition and building crisis firewalls through micro-and-macroprudential policies. Monetary and financial sector integration was also found to have a bearing on the cost and profit efficiency of African banks. Lastly, some prominence of economies of scale across African banking sectors was observed, which demands raising scale capacity and bank consolidation strategies to fully harvest welfare gains emanating from eradicating existing excess capacities.