Efficiency of commercial banks in Lebanon

Abstract

The study evaluates the key performance indicators of the banking sector in post-war Lebanon, in an attempt to assess the efficiency of the sector in producing the conventional outputs. Using data from 1993 to 2002, we observe that the sector grew significantly in size as measured by assets, but the growth in assets was not accompanied by a similar growth in profits. Equity capital grew significantly over the period and the sector became safer. In fact, the prevalence of Lebanese treasury bills in the banks' asset portfolio indicates that commercial banks during this period did not play their traditional role of financing the private sector initiatives; instead, the bulk of their funds financed the public sector. The stochastic production and cost function estimates show that bank level inefficiency effects decreases with time and increases with number of branches, employees per branch, and ratio of staff to operating expenses.