Working Papers

Measuring Banking Efficiency Post Consolidation: The Case of Egypt

Publication Number: ECESWP173-E

December, 2012

Author : Malak Reda

Type : Working Papers

The Egyptian banking sector has witnessed several reforms over the past decade. Among key reforms was mandating that banks raise their capital considerably during the period 2004-2006, which triggered a wave of bank mergers and acquisitions. In this context, the study compares the results of two periods 2000-2003 (pre consolidation) and 2007-2010 (post consolidation) in order to assess the efficiency of Egyptian banks. The comparison is undertaken using data envelopment analysis (DEA) and traditional financial ratios to capture changes in profitability and financial performance. Moreover, Tobit regression analysis is used to identify efficiency determinants. The analysis shows that consolidation had a positive effect on managerial efficiency, bank capitalization and risk management practices. Yet, bank intermediation function and profitability remain weak. With that in mind, the study emphasizes the importance of designing a strategy that promotes productive lending to small and medium-sized enterprises as well as creating innovative lending instruments well suited to the needs of the Egyptian market.