Financial Sector Liberalization and Productivity Change in Uganda's Commercial Banking Sector

"The study employed quarterly data over a 13-year period from 1993 to 2005 to study the evolution of Total Factor Productivity (TFP) and its determinants among 11 banks in Uganda. Productivity was measured using the Malmquist index while the determinants of productivity were estimated using a two-way error components model. The results show that at the industry level there was a modest decline in TFP. However, at an individual level the experience is mixed. Six foreign-owned banks and one locally owned bank registered modest improvements while two foreign-owned and two locally owned banks registered declines. The declines recorded by the deteriorating banks more than offset the modest increase in TFP among improving banks. In addition, since the study covered a fairly long and non-homo geneous period (1993 to 2005) in terms of productivity change, it is rational to deduce that the major decline recorded in the first half of the period (1993 to 1999) more than offset the modest improvement in productivity that was recorded in the second period (2000 to 2005). Bank-level determinants of productivity were capital adequacy, which had a negative effect while increasing shareholders stake in banks, improvement in liquidity and earning power affected productivity positively. At the macro level, it was not possible to find a positive significant effect of financial liberalization on bank productivity."