This study attempts to measure the productivity of the banking industry by employing the nonparametric malmquist index approach. The finding has shown that there is a decline in productivity growth in the banking industry. Like the manufacturing sector, the future growth of this industry would depend on its ability to compete efficiently. Being able to provide service in an efficient way would be an important source of comparative advantage in the era of globalization. The results also suggest that the technical efficiency rather than technical progress contributes to the overall productivity growth of the industry.

The interest on the study on efficiency has continued to draw considerable passion among researchers. To an economist efficiency is inherently important, positing a direct relationship with productivity. Understanding the measurement of productivity is important because of the fact that productivity growth is a major source of overall economic growth and welfare improvement of both consumers and producers. In fact, productivity improvement will lead to lower prices and higher consumer welfare unless the entire productivity gain is retained by producers in a noncompetitive market environment. Technical advance and technical efficiency improvements are two key factors to overall productivity growth which are associated with different sources and may need different policies to address them. It is, therefore, important to decompose total productivity growth into these two components: Technical efficiency change and technological change.

The examination of efficiency in banking has important public policy implications in the Malaysian context in the environment of globalization. Restructuring of the financial system is now taking place in Malaysia. The banking industry is a vital part of the financial system in any country. Hence, the assessment of its efficiency is important. Using disaggregated data over six years, we examine the patterns of productivity and efficiency changes in the 37 Malaysian commercial banks.

An Analysis of Technical Progress and Efficiency in Malaysian Commercial Banks Before Mergers, productivity of the banking industry, manufacturing sector, comparative advantage, era of globalization, technical efficiency, Total Factor Productivity, managerial performance, power technical change, productivity growth in all sectors,General Agreement on Trade in Services.