Banking reforms and banking efficiency in Libyan commercial banks : a non-parametric approach

Alwaddan, Abubaker (2005) Banking reforms and banking efficiency in Libyan commercial banks : a non-parametric approach. Doctoral thesis, Northumbria University.

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Abstract

The Libyan economy has witnessed remarkable changes especially since the 1970s when the government introduced the so-called nationalisation and Libyanisation programmes and adopting socialist system. Consequently, the state undertook control of all economic and financial aspects. The Libyan banking system has been characterised as a governmental control system for credit allocation. This situation led to lax prudential regulation and supervision in banking sector as well as resulting in various problems such as lack of performance, low efficiency, high levels of nonperforming loans, and lack of internal control systems. Therefore, Libyan government has return to privatisation in early 1990s including, the initial reform policy to enhance performance of banking sector. The main questions of this study are: 1) is the current performance of the Libyan banking sector acceptable. 2) Have the Libyan banking reforms affected internal control system, banking efficiency, and performance. The objective of this study is to assess and evaluate performance through measuring efficiency in the Libyan commercial banking sector by using Data Envelopment Analysis (DEA). In this study, however, we attempt to incorporate such qualitative aspects into our measurement of efficiency scores in order to appraise the potentials of the internal control systems by using questionnaire analysis. Recent literature on financial and banking reform is reviewed. In the light of this, an overview of the initial reforms in Libya is presented emphasising on the impact of government control over banking sector. Using DEA technique, the efficiency of
Libyan commercial banking is analysed, as cross-section and DEA-window analysis during the period between 1980 and 2000, indicating little impact of the banking reforms, with scale inefficiency. In addition, score efficiency in conjunction with financial ratios suggest that banks with high efficiency scores also exhibit high scores in capital adequacy, asset utilisation, and liquidity position, and lower ratios in profitability, and asset quality. Finally, in terms of audit function efficiency, the results show that banks with high technical efficiency tend to have higher efficiency in auditing function.

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