TITLE:
Revisiting Efficiency Dynamics in Ghana’s Rural and Community Banks: A Two-Step DEA and System GMM Analysis of Cost, Revenue, and Profit Efficiency
AUTHORS:
Stephen Banahene, Joyce Ama Quartey, Reindolph Osei-Anim, Patricia Adutwumwaa, Samuel Nkansah
KEYWORDS:
Rural and Community Banks, Data Envelopment Analysis, System GMM, Cost Efficiency, Revenue Efficiency, Profit Efficiency, Ghana
JOURNAL NAME:
Open Journal of Business and Management,
Vol.14 No.5,
September
10,
2026
ABSTRACT: This study examines the efficiency dynamics and determinants of Rural and Community Banks (RCBs) in Ghana using a two-step Data Envelopment Analysis (DEA) and System Generalized Method of Moments (System GMM) framework. Specifically, the study estimates cost, revenue, and profit efficiency and investigates the bank-specific and macroeconomic factors influencing these efficiency measures. Secondary data were obtained primarily from the audited annual financial statements of Rural and Community Banks accessed through the ARB Apex Bank database. Additional governance-related information was verified from the published annual reports of the respective banks where necessary. The study covers the period from 2014 to 2019 and focuses on 20 of the 25 Rural and Community Banks operating in the Ashanti Region of Ghana. Banks with incomplete financial statements or missing observations during the study period were excluded to ensure a balanced panel suitable for DEA estimation and dynamic panel analysis. In the first stage, Data Envelopment Analysis was employed to estimate cost, revenue, and profit efficiency scores, while the second stage used the System GMM estimator to identify their determinants. The findings indicate that Rural and Community Banks exhibit relatively high cost efficiency but comparatively lower revenue and profit efficiency, suggesting that significant opportunities remain for improving income generation and profit performance. The empirical results further reveal that liabilities, loan-to-deposit ratio, non-performing loans, return on assets, and return on equity significantly influence cost efficiency. Liabilities and non-performing loans are important determinants of profit efficiency, whereas loan-to-deposit ratio, investment-to-assets ratio, expenses-to-assets ratio, and liabilities significantly affect revenue efficiency. The study concludes that strengthening governance structures, improving credit risk management, enhancing resource allocation, and reinforcing regulatory oversight are critical to improving the operational efficiency and long-term sustainability of Rural and Community Banks in Ghana.