Efficiency of Foreign Banks in Small Financial Sectors: Empirical Evidence from Fiji
13 Pages Posted: 22 Jan 2013
Date Written: 2012
Motivated by the Sharma and Gounder (2012b) finding that deposits may play a key role in enhancing bank credit to private sector in the Pacific, this study investigates a pertinent gap in the literature — the efficiency of banks in the region in converting deposits into credit. Data limitations restrict our investigation to Fiji only but provide additional insights on bank efficiency studies — that of banks in a foreign–controlled, small financial sector. DEA technique is used to measure the efficiency of all five banks over the 2000-2010 period. On one hand banks remain highly profitable and well capitalised but on the other they may be relatively inefficient in converting mobilised deposits into private sector credit. Moreover, the overall efficiencies may have deteriorated over time. Policy implications emerge, including requiring banks to become more efficient producers of credit. In light of the structural and operational similarities of financial sectors across the Pacific, the results of this study and policy implications are likely to apply to the rest of the Pacific.
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