Assessment of the Efficiency and the Productivity Changes of Banks in Ghana Using Data Envelopment Analysis Approach

Due to the unstable nature of the banking sector in recent years in Ghana and the complex environment of the banking system, there is a need to assess the efficiency and productivity of the sector and its environment to minimize management waste and improve business practices. Traditional methods of evaluating performance using a single ratio such as Return on Equity (ROE) do not provide reliable results; hence, the use of the Data Envelopment Analysis model. Panel data was collected from nineteen (19) banks for the period from 2015 to 2023 for this study. In terms of the banking operation model, the input- oriented intermediation approach model was used. Data Envelopment Analysis was also used to analyze efficiency and productivity using the CCR and BCC models, as well as the Malmquist index, respectively. DEAP Software, version 2. 0, was used to measure overall technical efficiency, pure technical efficiency, and scale efficiency. The DEAMalmquist index was also employed to measure and assess changes in total factor productivity, technical efficiency, and efficiency changes. Most of the banks recorded an improvement in efficiency levels, with mean scores of 80. 9 per cent and 87 per cent using the CCR and BCC models, respectively, but pure technical inefficiency significantly impacted inefficiency compared to scale efficiency, with a mean score of 92. 9 percent. The overall results from the Malmquist index on productivity factor change showed that the total factor productivity change index regressed by 12. 1 percent. Technical change was found to be the most important source of productivity decline, with a regression of 9. 9.6 percent. Efficiency change regressed by 2 percent, with its decomposition showing pure technical change and scale efficiency change regressed by 0. 80 percent and 1. 1.2 percent, respectively. The regression in total factor productivity change, due to technical and efficiency changes, indicates great potential for the industry to increase productivity through investment in technology and its utilization, by constantly equipping personnel with relevant technological advancements.