The Financial Determinants of Operating Efficiency for Lowand High Competitive Banks in Egypt

Purpose: This study examines the contribution of Egyptian banks’ financial aspects to their operating efficiency. The study introduces a link between banks’ relative competitive positions and operating efficiency by examining the financial profile of high versus low competitive banks. Design/methodology/approach: The statistical method utilizes the benefits of the Partial Adjustment Model, which measures the extent to which bank financial performance affects its operating efficiency. The sample includes 24 commercial banks covering the period 2001-2008. Findings: The results show that: (a) in the high competitive banks, operating efficiency is positively and significantly affected by banks’ asset quality, capital adequacy, credit risk, and liquidity. These results offer clear evidence that high competitive banks in Egypt are distinguished from low competitive banks by carefully designed financial policies. Originality/value: To the best of the authors’ knowledge, this study contributes to the relevant literature in that it examines a practical relationship between banks’ competitiveness and operating efficiency.