The Financial Determinants of Operating Efficiency for Lowand High Competitive Banks in Egypt

Abstract

This study examines the contribution of Egyptian banks' financial aspects to their operating efficiency. The study introduces a link between banks' relative competitive positions and operating efficiency by examining the financial profile of high versus low competitive banks. Design/methodology/approach: The statistical method utilizes the benefits of the Partial Adjustment Model, which measures the extent to which bank financial performance affects its operating efficiency. The sample includes 24 commercial banks covering the period 2001-2008. Findings: The results show that: (a) in the high competitive banks, operating efficiency is positively and significantly affected by banks' asset quality, capital adequacy, credit risk, and liquidity. These results offer clear evidence that high competitive banks in Egypt are distinguished from low competitive banks by carefully designed financial policies. Originality/value: To the best of the authors' knowledge, this study contributes to the relevant literature in that it examines a practical relationship between banks' competitiveness and operating efficiency.

Bank Capital, Operating Efficiency, and Corporate Performance in Nigeria

“…A number of indicators are used to measure bank profitability, but the most prominent of them are return on assets (ROA), return on equity (ROE) (Olson & Zoubi, 2011), and net interest margin (NIM) (see: Alper & Anbar, 2011;Aymen, 2013;Ejoh & Iwara, 2014;Eldomiaty et al, 2015;Odunga, 2016;Tan, 2016). ROA is obtained by dividing Net income by total assets, while ROE is generated from the results of the ratio of Net income to shareholders' fund.…”

“…ROA is obtained by dividing Net income by total assets, while ROE is generated from the results of the ratio of Net income to shareholders' fund. NIM is the net interest income, that is, interest received minus interest paid, expressed as a percentage of earning assets, that is, loans plus other earning assets, excluding fixed assets (Eldomiaty et al, 2015). It is a reflection of how successful a bank's investment decisions are relative to its interest expenses and is distinguished from ROA because it focuses on profit earned on interest-generating activities against ROA's focus on profit earned per unit of total assets (Tan, 2016).…”

“…Efficiency could be measured with a number of indicators, including asset utilization ratio (AU) and cost-to-income ratio (CIR), but the discussion about the productivity and efficiency in banks is often based on CIR (Burger & Moormann, 2008). CIR symbolizes a relationship between the expenses and operating income of a bank or a measure of cost of running a bank as a percentage of income generated before provisions (Burger & Moormann, 2008;Eldomiaty et al, 2015). The general rule is that a high CIR is synonymous to low productivity and efficiency (Burger & Moormann, 2008), indicating that a decrease in efficiency ratio is a positive sign, while an increase is undesirable (Odunga, 2016).…”

“…The general consensus that brought about the Basel Accords -an exercise that has given birth to Basel I, II, and III -with a view to entrenching the financial system's soundness and ensuring sustainable growth and increased profitability remains a global phenomenon. The significance of adequate capitalization and efficient running in the determination of the operating performance of a bank has been stressed (Eldomiaty, Fikri, Mostafa & Amer, 2015;Mills & Schumann, 1985). Capitalization, which comes in the form of capital adequacy, has been an integral part of the instrument used by bank regulators worldwide to regulate banking activities (Hogan, 2015).…”

“…Operating efficiency appears to be a reliable driving force of the banks' corporate performance (Eldomiaty et al, 2015). An organization believed to be efficient has the capacity to deliver products and services without sacrificing quality (Allen & Rai, 1996).…”