Measuring the efficiency of Lebanese banks after the 2007 financial crisis and the turmoil of the 2011 Arab Spring

This paper measures and compares the efficiency and productivity of the Lebanese banking sector after the 2007 financial crisis and the 2011 Arab Spring by means of a Data Envelopment Analysis for the years 2008, 2011 and 2013. Number of employees, total interest expense and number of branches were used as input factors versus total interest income and total non-interest income as output factors. According to the CCR and BCC models, most banks recorded better efficiency results in 2013 than in either 2011 or 2008. The Wilcoxon matched-pairs signed-rank test confirmed that the efficiency of Lebanese banks was not affected in the aftermath of the financial crisis and even improved after the turmoil of the Arab Spring. Scale efficiency was calculated and all possible sources of inefficiency corresponding to each bank were examined. The Malmquist Total Factor Productivity (TFP) index revealed an overall improvement in productivity of 6.3% due to the progress in technology and managerial efficiency. Quantified improvements were suggested for inefficient banks: total non-interest income appears to be an under-produced output for 10 banks and a serious effort is thus required to diversify the sources of income; and total interest expenses should be reduced through cutting interest rates or reducing deposit amounts. Despite the overall efficiency of the Lebanese banks, they remain at risk due to their vulnerability to various macro, socio and political factors.