Bangladesh Bank Training Academy Journal

Abstract

The current study aims to measure and compare the technical, allocative and cost efficiency of Islamic and conventional commercial banks operating in Bangladesh during 2017-2022. It applies data envelopment analysis (DEA) technique to estimate efficiency of 19 commercial banks which include five Islamic banks, four state-owned banks and ten conventional private commercial banks. Islamic banks showed better efficiency performance against conventional state-owned and private commercial banks. The mean technical, allocative and cost efficiency scores were 0.990, 0.797 and 0.789 for Islamic commercial banks. In contrast, the mean technical, allocative and cost efficiency scores were 0.705, 0.536 and 0.398 for the conventional state-owned commercial banks and the scores were 0.964, 0.759 and 0.735 for conventional private commercial banks. The empirical results also show that the mean technical, allocative and cost efficiency scores of all commercial banks are 0.886, 0.698 and 0.641 respectively implying that all banks showed mean technical, allocative and cost inefficiency scores of 0.114, 0.302 and 0.359 respectively. The findings suggest that there is room for improvement of cost efficiency by enhancing both technical and allocative efficiency. To this end, bank management need to adopt measures for promoting managerial efficiency (technical efficiency) and using inputs in optimal proportion given their respective prices (allocative efficiency).