Efficiency Analysis Of Earnings Of Commercial Banks In Liberia By DEA Method

The banking sector contribute greatly to economic growth and development in every country's economy.An efficient bank sector is a major concern of every country around the world because of economic growth.The banks in an economy have access and control over huge part of the supply of money in circulation that impacts the capacity of production and the nature and characteristics of factor of production.Thus,the banking sector in Liberia is no exception.The banking sector over the period in Liberia have had a considerable amount of non-performing loans which have subsequently affected the banks' profitability.Against this background,we evaluated the earnings efficiency of five commercial banks in Liberia from 2011 – 2015.We focus on three key input and output variables and used the information on the financial statement of these banks to test the assumption of the research using the Data Envelopment Analysis(DEA)method.The input variables were interest expense,labor cost and fixed cost,while the output variables were interest income,non-interest income and liquid assets.We found out that two out of the five banks were more efficient from 2012–2015 and in 2011,four out of the five banks were efficient.The inefficiency of these banks were cause by the earnings that were overly consumed and these banks were unable to control cost in achieving the maximum output as compare to input,while non-performing loans had a negative impact on the bank's profitability.The result also showed that from the bank over all expenses during the study period,interest expense,labor cost and fixed cost amounted to 54.53%,22.71% and 19.11% respectively.Further suggestion were made and that these banks should pay more attention to loans that they give out to customers even if the increased capitalization and liquidity have a dual effect on the profitability thereby creating a positive relationship because a well-capitalized banking sector is also a profitable one.