HOW EFFICIENT IS THE SOUTH AFRICAN BANKING SECTOR?

Abstract

Literature has failed to provide a sufficient long-term relative efficiency overview of the South African banking sector, which might aid bank management in establishing strategies to ensure profitability and long-term sustainability through improved resource management. This study utilized Coelli's (1998) multi-stage data envelopment analysis (DEA) technique to assess the technical and scale efficiency of 26 banks over 17 years (January 2004-December 2020). According to the findings, the top South African banks failed to meet expectations, as they could not consistently demonstrate comprehensive technical and scale efficiency. Moreover, the results show that banks have slowly recovered from the global financial crisis. The bank regulatory authority must also address the fact that several banks continue to demonstrate inefficient efficiency. Suppose future bank legislation aims to reduce risk sensitivity and the use of internal models in decision-making. In that case, it is suggested that the forthcoming Basel Accord include an additional prudential, all-inclusive tool derived from non-financial measure methodology to provide greater insight into resource management. By imposing a penalty on banks that demonstrate poor resource management, the government will encourage greater market disclosure and drive banks to operate more effectively, particularly during volatile times.