Abstract:
This study examines the improvement of the efficiency and performance pf the NBC Limited
in the face of the financial sector reforms programmes currently being implemented in
Tanzania. The thrust of the study is to investigate into whether there have been positive or
negative effects of reforms in the NBC Limited efficiency and what are the sources of scale
inefficiency. A non-parametric approach, data envelopment analysis (DEA) has been used to
arrive at the efficiency score for the National Bank of Commerce Limited.
The main empirical findings of the study suggest abundant support for the financial sector
reforms in the case of Tanzania. The study reveals that annual average efficiency pf the bank
as a whole followed an upward trend, which supports the financial sector reforms to fulfill its
promise in terms of efficiency gains to higher levels as anticipated. The Malmquist index
results suggest efficiency improvement, sources of productivity improvement as the result of
growth in scale efficiency, and technological progress. Others include the large proportion of
the NBC Limited operate at pure technical and scale efficiency levels well on the best practice
frontier on from the years 1998-2004, and the main sources of scale inefficiency in the NBC
Limited was due to diminishing returns to scale which account for about 42 percent.
The study makes several recommendations, first, the study recommends that there should be
further reforms and restructuring of the system with action to promoting competition and efficiency of the financial system. Second, it recommends that bank directors/management
should make policies which will eliminate the scale problem in the bank and promote
improvement in efficiency leading to achievement of optimal scale size. Third, it is also
recommended that policies that eliminate scale problem and promote the use of the existing
bank resources to the optimal utilization be given priority in the bank.
