The productivity of Omani banks: a data envelopment analysis approach

The aims of this research are to analyse the performances of Oman's banking sector and do a comparative analysis for its different units. The analysis is based on the assessment of the relative efficiency of the commercial banks operating in Oman. Data Envelopment Analysis (DEA) was used to evaluate the relative efficiency of the commercial banks in Oman. Panel data for the period of 2000-2005 were used to conduct the analysis. The intermediation theory serves as the theoretical background. The DEA provides the Technical Efficiency (TE) score for each bank per year. The TE scores are then decomposed into Pure Technical Efficiency (PTE) and Scale Efficiency (SE). In line with previous similar studies, the results suggest that the banking system in Oman, though performing proportionally to the size of its units, shows signs of pure technical inefficiency. Furthermore, the relatively high average TE score (90.4%) indicates the oligopolistic nature of Oman's banking sector. The findings also indicate that the local commercial banks outperform their foreign counterparts, confirming the home-country advantage suggested in the corporate cross-border activity literature. Finally, large banks are found to out perform their medium and small counterparts.