Author

Kishor Hakuduwal, Ph.D.

Abstract

The paper estimates and assesses the technical efficiency at individual and
aggregate levels and categorizes groups of banks at various ranges of efficiency.
The commercial and development banks established before 2005 in Nepal has been
considered as the population of the study and 20 banks are selected using
systematic random sampling. The 180 observations of nine year’s panel data from
FY 2006/07 to FY 2014/15 has been used. Stochastic Frontier Approach is used
taking three input variables i.e. capital, deposit and human resource cost, and one
output variable i.e. loans and advance of sampled banks for analysis. The study
found that the average technical efficiency (TE) by nature of banks provide
commercial banks as the more efficient than development banks. The joint venture
banks are the most efficient than other categories of banks. The average efficiency
of banks established inside the Kathmandu valley (Head Office located inside
Kathmandu) is lower than the average efficiency of banks established outside the
Kathmandu valley (Head Office located outside Kathmandu). Similarly, the banks
established after 1995 are found more efficient than the banks established before
1995. The study has important implications for the policymakers to take corrective
actions for improving the efficiency of the Nepalese banking sector with respect to
human resource policy, deposit collection policy and loan management policy.