Academic journal article International Journal of Business and Information

Operational Efficiency and Productivity Change of Major Cambodian Financial Institutions during the 2006-2011 Period1

Academic journal article International Journal of Business and Information

Operational Efficiency and Productivity Change of Major Cambodian Financial Institutions during the 2006-2011 Period1

Article excerpt


This study could be the first attempt to analyze the performance of the Cambodian financial sector from the viewpoint of microeconomics. The study examines the operational efficiency and productivity of 18 major financial institutions in Cambodia during the period 2006 to 2011. Data envelopment analysis was used to estimate the efficiency of business operations, and the Malmquist productivity index was used to identify the reasons for productivity changes. Empirical results reveal that the efficiency scores were higher in large institutions than in small ones. When measured using a value-added approach that focused on the fund mobilization capability of financial institutions, the efficiency of domestic institutions was found to be better than that of their foreign counterparts. When measured using an operational approach that focused on the income-earning capacity of institutions, there was no significant difference in technical efficiency between domestic and foreign institutions. It was also observed that Cambodian financial institutions suffered a slight drop in total factory productivity during the research period. These observations suggest that further improvement of the technical efficiency of Cambodian financial institutions requires an increase in the operational capacity of individual institutions and the introduction of advanced technologies and skills.

Keywords: Cambodia, financial institutions, DEA, operational efficiency, TFP change


Since the early 2000s, Cambodia has achieved high economic growth and remarkable success in modernizing its economic structure. Although Cambodia is known as an agriculturally oriented country, recently its focus has shifted to the industrial and service sectors. With the transformation from a basically self-consuming economy based on social planning to a market economy based on nationwide trade networks, the Cambodian government has adopted a long-term vision and strategy aimed at developing its economy by implementing structural reforms in all sectors of its economy, including the financial system.

The Cambodian government is eagerly involved in reforming the financial systems that are viewed as having an important role in developing economies. The International Monetary Fund [IMF, 2011] acknowledged the remarkable achievements of the Cambodian financial system. First, the National Bank of Cambodia (NBC) gained recognition for its prudent policies and regulations. Second, banks are increasingly beginning to reap the benefits of transparency, even to the extent of obtaining international credit ratings. Third, the government's steadfast adherence to the market, freedom from exchange controls, and unrestricted capital movement make it one of the most "business friendly" environments in the region. The rapid development of the financial system, however, has also exposed it to challenges [Ahmed and Runggcharoenkitkul, 2014; IMF, 2011]. For instance, with many new bank entrants, Cambodia is over-banked compared with its regional neighbors and other countries at a similar level of development. In addition, financial institutions face many obstacles such as lack of adequate human resources, the inability to obtain sources of funds, ineffective management, regulatory compliance, and inefficiency of accounting systems, to name a few..

Although efficient financial institutions are essentially needed to promote economic development, there are no previous studies analyzing the performance of financial institutions in Cambodia. The lack of analytical information about the performance of financial institutions has been a serious obstacle for policy makers in monitoring the financial sector and designing an efficient financial system. The purpose of the current study is to provide useful information to assess the operational efficiency of Cambodian financial institutions and to analyze the changes in their productivity and technology. …

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