An analysis of the relationship between bank efficiency and access to banking services in South Africa

The primary objective of this study is to investigate the nature of the relationship between bank efficiency gains and access to banking services in South Africa. The importance of making such an enquiry arises from the fact that various studies have identified access to financial services as an important vehicle for lifting the poor out of poverty. In particular, there is concern that banks` appetite for better scores on efficiency has the potential of reducing access to services for consumers particularly the low-income clients. The study attempted to answer two central research questions: Firstly, does the quest for banks to improve efficiency preclude access to banking services for some group of consumers? Secondly, do bank efficiency gains necessarily translate to improved accessibility to banking services? The researcher applied a two-stage methodology approach. In the first stage, the Hicks-Moorsteen aggregator functions were used to generate and decompose total factor productivity (TFP) into several efficiency measures for a panel of eight South African banks. First stage results revealed that the average banking sector total factor productivity efficiency (TFPE) was 59 percent implying that the observed TFP was 41 percent short of the maximum TFP possible using the available technology. A further comparison of performance revealed that large banks were better performing than small banks in terms of TFPE. Apart from estimating and decomposing TFP indices we needed to determine if there was a statistically significant change in the TFPE of South African banking system as a result of the global financial crisis. A general analysis of the generated scores showed that TFPE clearly decreased during 2008-2009, the period that coincided with the global financial crisis. We then used the Fixed Effects Model (FEM) in the second-stage analysis to examine the link between banking sector TFPE and access. The FEM was utilised to take account of bankspecific heterogeneity. The obtained results indicated existence of a positive and significant relationship between banking efficiency and access to banking services. This study suggests that banking sector efficiency plays a crucial role in promoting access to bank services in South Africa. We therefore underscore the need for all banks to attain and maintain high efficiency in order to augment government efforts towards improving accessibility for the unbanked South African people. We also found evidence similar to that reached by Kablan (2010) that an increase in the rural population is associated with a reduction in access to bank services. From this result, we speculated that banks are somewhat biased against providing their services to the general rural populace. Since the rural-population variable exerted the greatest marginal impact on access we suggested that perhaps investment in rural infrastructure would help broaden access and so improve financial inclusion on a larger scale. Finally we also investigated the link between banking sector efficiency and unemployment in South Africa. Of paramount importance in the second stage analysis was that we found a negative and significant association between banking sector efficiency and unemployment indicating that employment is influenced, inter alia, by the efficiency with which banks operate

Internal Determinants Of Bank Profitability In South Africa: Does Bank Efficiency Matter?

In a study conducted by Ncube (2009) to evaluate bank cost and profit efficiency, it was established that South African banks were more efficient at managing costs than generating profits. In this paper, the aim is to complement this particular work by exploring the internal determinants of bank profitability but with more focus on the impact of bank efficiency. Applying a two step-methodology framework to a panel of four small banks and four large banks for the period 2005-2011, total factor productivity efficiency (TFPE) scores were generated using the DEA methodology. Within the first stage, the intermediation approach was followed in which bank inputs included total operating expenses, labour, fixed assets, and total deposits while interest income, non-interest income and gross loans were considered as output variables. Each bank`s efficiency score for each of the periods was then evaluated based on its distance from the constructed efficiency frontier. In the second stage analysis, the Generalised Least Squares Fixed Effects Model was then performed to examine the impact of TFPE among other internal determinant factors on bank profitability indicators, specifically return on average assets (ROAA) and net interest margin (NIM). The obtained empirical findings showed that high total factor productivity efficiency and capital adequacy lead to higher profitability, while high cost inefficiency, diversification activities, large bank size, and high credit risk leads to lower profitability. Of great importance was that both models confirmed the positive role of attaining efficiency as an important driver of profitability among banks

The Trade-Off between Banking Outreach And Profitability: Evidence From selected South African Development Countries

In this paper, the fixed effects method known as the least squares dummy variable (LSDV) technique was applied to investigate the possibility of a trade-off between bank profitability indicators and banking outreach (expanding access to banking services) by analysing a panel of 10 South African Development Countries (SADC). Of the fifteen SADC member countries (Angola, Botswana, Democratic Republic Of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, United Republic Of Tanzania, Zambia, and Zimbabwe), five (Botswana, Congo, Lesotho, Malawi and Zimbabwe) had to be excluded for lack of consistent data throughout our period of analysis.  The author investigates whether expanding banking access and pursuing profitability are complementary goals in the same direction or are two conflicting goals. For estimation robustness, two indicators of profitability were used namely return on average assets (ROAA) and return on average equity (ROAE). IMF Financial Access Survey (FAS) data for each country namely, deposit accounts per capita and the number of bank branches per 1000 km2 were used as indicators of bank outreach or access. Operational inefficiency, insolvency risk and credit risk were found to exert a negative impact on both ROA and ROE. Net interest margin a proxy for interest based services and off-balance sheet activities were statistically significant and positively related with bank profitability. Central to the study was that expanding banking access was found to exert a statistically significant and positive impact on profitability for some SADC countries. However, contrary to the author`s expectation, for some countries, the indicator of outreach was inversely related with the chosen indicators of profitability. The researcher however, argues that any form of intervention aimed at improving the state of access to those financially excluded cannot be evaluated from a cost or profit perspective alone but must be all-inclusive taking into account the social and economic benefits to the society as a whole. The major purpose of financial inclusion is to reach the poor and disadvantaged segments of the population. Hence, the author cautions that although attaining high profitability is an important policy objective for ensuring sustainability and financial stability, it is certainly not the only priority. Access to banking services, social inclusion and consumer protection are equally important policy priorities. There is therefore need for government support and a general holistic stakeholder approach to the problem of banking exclusion in order to generate solutions that achieve both profitability and outreach in a balanced fashion

Budget Deficits and Economic Growth: A Vector Error Correction Modelling of South Africa

The primary motivation behind this study was to explore the consequential effects of budget deficit on South Africa`s economic growth. Six variables were used, namely: real GDP, budget deficit, real interest rate, labour, gross fixed capital formation and unemployment. The Vector Error Correction Model (VECM) was used to estimate the long-run equation and also measure the correction from disequilibrium of preceding periods. Using annual time series data spanning the period 1985 to 2015, empirical evidence from the study revealed that budget deficits and economic growth are inversely related. It was therefore concluded that high levels of budget deficit in South Africa have detrimental effects on the growth of the economy. The estimate of the speed of adjustment coefficient found in this study revealed that about 29 per cent of the variation in GDP from its equilibrium level is corrected within one year. The results obtained in this study are favourably similar to those in the literature and are also sustained by previous studies

Intra-Africa immigrant entrepreneurship for intra-African trade and economic development: Towards a borderless Africa

Purpose: This paper aims to conceptualize intra-Africa immigrant entrepreneurship and provide evidence of its impact on intra-African trade and economic development. Immigrant entrepreneurship is often regarded as a key driver of international trade and economic development around the world; yet very little is known about intra-Africa immigrant entrepreneurship and its role in intra-African trade and economic development in Africa. Methodology: This paper applied a systematic review of literature methodology to provide insights into the role of intra-Africa immigrant entrepreneurship on trade and economic development of both host and home countries. Recommendations on how intra-Africa immigrant entrepreneurship can be used to promote intra-African trade and economic development are reviewed. Results: Policy guidelines that may increase the positive impact of immigrant entrepreneurs within the context of intra-African trade include immigration policies that attract high impact entrepreneurs, non-discriminatory support for high impact immigrant entrepreneurs as well as policies to strengthen the role of free trade agreements such as the African Continental Free Trade Area (AfCFTA). Conclusion: We conclude that African regional integration to promote intra-Africa immigrant entrepreneurship development is a conduit for Africa’s long-term and sustainable economic development. Evidence of the positive impact of intra-Africa immigrant entrepreneurship on intra-African trade and economic development is scant. At the same time, the notions of intra-Africa immigrant entrepreneurship are not well documented in the literature. This paper provides arguments for the promotion of intra-Africa immigrant entrepreneurship as a tool to increase intra-African trade and economic development

Profit incentives and technical efficiency in the provision of health care in Zimbabwe: an application of data envelopment analysis and econometric methods

This study examines issues surrounding efficiency in the Zimbabwean health sector with specific emphasis on for-profit hospitals in order to find out whether they are significantly more efficient than non-profit hospitals. The study attempts to explore the significance of profit incentives on efficiency. This study uses the Data Envelopment Analysis (DEA) methodology to examine hospital efficiency scores for the 100 hospitals in the sample classified as for-profit, mission and public. Outputs of the study include inpatient days and outpatient visits. The number of beds, doctors and nurses were used to capture hospital inputs. The findings indicated that there was a marked deviation of efficiency scores from the best practice frontier with for-profit hospitals having the highest mean PTE of 71.1 percent. The mean PTE scores for mission and public hospitals were 64.8 percent and 62.6 percent respectively. About 85 percent, 83 percent and 91 percent of the for-profit, mission and public hospitals were found to be operating below their average PTE. More than half of the hospitals are being run inefficiently. Of more importance to this study is the fact that the hypothesis of for-profit hospital superiority was accepted implying that for profit hospitals are significantly more efficient than the non-profit category. The study indicated that the amount of inputs being used could be decreased substantially without decreasing the quantity of outputs achieved. In each of the hospitals included in the study, the total input reductions needed to make inefficient hospitals efficient are more than 50 percent. These input savings could go a long way in achieving other health concerns without mobilizing additional resources in the secto

The Random Walk Theory And Stock Prices: Evidence From Johannesburg Stock Exchange

In this paper, we test the Johannesburg Stock Exchange market for the existence of the random walk hypothesis using monthly time series of the All Share Index (ALSI) covering the period 2000 – 2011. Traditional methods, such as unit root tests and autocorrelation test, were employed first and they all confirmed that during the period under consideration, the JSE price index followed the random walk process. In addition, the ARIMA model was constructed and it was found that the ARIMA (1, 1, 1) was the model that most excellently fitted the data in question. Furthermore, residual tests were performed to determine whether the residuals of the estimated equation followed a random walk process in the series.   The authors found that the ALSI resembles a series that follow random walk hypothesis with strong evidence of a wide variance between forecasted and actual values, indicating little or no forecasting strength in the series. To further validate the findings in this research, the variance ratio test was conducted under heteroscedasticity and resulted in non-rejection of the random walk hypothesis. It was concluded that since the returns follow the random walk hypothesis, it can be said that JSE, in terms of efficiency, is on the weak form level and therefore opportunities of making excess returns based on out-performing the market is ruled out and is merely a game of chance