Performance Measurement, Growth And Structure Of East Africa Commercial Banks

ABSTRACT

The objective of the study was to contrast bank performance measures and propose a single measure of performance for commercial banks in the East African Community (EAC) region. The study is in two major parts and addressed four main objectives. The first part analysed the various performance measures that have been applied by banks which include Return on Equity (RoE), Return on Assets (RoA), Net Interest Margin (NIM), Profit Margin (PM), efficiency, effectiveness and explored the application of a single measure (SM). The second part examined the theoretical relationships between market structure, financial structure, growth and bank performance measures for commercial banks in the EAC region. The study is motivated by the fact that though the banking sector constitutes a large part of the financial system in the East African Community, there is no consensus on a performance measure for commercial banks in the member nations, moreso, as the region moves toward further integration and subsequently a monetary union. The study used secondary data from annual published audited financial statements for the period (1997-2011) and collected data for the 127 licensed commercial banks within the EAC region. The results conform to the Structural Conduct Performance (SCP) theory that advocates a positive and significant relation between market structure and performance. The results for structure size support the financial structure theory that postulates an insignificant relationship for the SM, PM, NIM and PM but the structure activity variable contradicts the theory in the case of RoE, SM and PM. The results also support the finance growth theory that postulates a positive relationship efficiency and growth. The single measure which combines productivity and profitability is found to be robust when compared and ranked to the other performance measures. The measure also conforms to the theoretical frameworks relating performance and real economic growth, market structure and financial,structure.