A Non-Parametric Analysis Of Efficiency Performances: The Case Of United Arab Emirates Banks

Abstract

Competition and over-banking in the United Introductionhe UAE banking industry is gradually moving closer to western trends where banking is perceived as a package of services, which go beyond mere lending. Today the controversial debate of overbanking and efficiency performances reflects serious challenges facing the industry. Some bankers agree that 46 banks serving over 3 million people and with a per capita income of almost US$19,000 is ample. Others advocate that the number of banks is irrelevant, provided they achieve profitable operations and adequate rates of growth. The aim of this research is to measure how efficient UAE banks are and to determine what structural factors influence their efficiency and performance. The methodologies employed are Data Envelopment Analysis (DEA), Malmquist index analysis and a series of second-stage regressions. Data from annual financial reports are used. Seventeen UAE banks between 1998 and 2002 are analysed. These banks represent all nonIslamic, national banks in UAE. The remaining three Islamic banks and 26 foreign banks are not included for reasons of limited availability of data and/or different financial procedures to regulatory compliance. A nonparametric approach using DEA is followed to estimate a variety of efficiency measures of each bank.The peculiarity of the United Arab Emirates" (UAE) social structures has bestowed a great importance on the banking sector, not only because of the local demographic structure where foreign labour accounts for more than ninety per cent of the workforce, regularly transferring remittances to their home countries, but also because the high per capita income, and high margin of savings. Regulations are now broadening to encourage investment, equity and property ownership to non-nationals, albeit limited. The banks are the central intermediaries for the vast oilbased wealth of the ruling families and source of capital investment within the country. Within a challenging climate of financial transparency and limited data availability, the contribution of this paper provides a benchmark and a unique table of efficiency performances, for comparative analysis between banks in the UAE for 2002 for present and future policymakers and researchers. A further contribution reveals what structural factors may influence their overall efficiency and managerial performances. Section two provides a literature review; section T

The Bank Efficiency through Off-Balance Sheet Items’ Window: A Malmquist Approach

“…Budd and Budd (2004) explored UAE banks to understand the effect of OBSI on profit efficiency. They used DEA method to estimate profit efficiency scores.…”

Consumers' Perceptions of Banks Country of Origin in the UAE

“…Within the UAE banking sector, 46 banks have been licensed by the UAE Central Bank, as of 2007, representing 17 local banks, 3 Islamic banking institutions, and 26 foreign banks (Budd, 2004 andHashmi, 2007).…”