Bangladesh Bank Training Academy Journal

Abstract

Efficiency is one the major concerns in any business setting irrespective of the nature or type of industry which it belongs. So, any company wants to achieve greater outputs with lower inputs, or to use the available inputs to the maximum. In this paper, the use of Data Envelopment Analysis (DEA) technique is illustrated in measuring the operational efficiency of the banking sector in Bangladesh, which currently has 58 scheduled banks. Out of these, 38 private commercial banks are taken into this analysis, where state owned banks and foreign commercial banks have not been considered. Five-year panel data (2013 to 2017), collected from the secondary sources, have been used to model the efficiency of different banks. DEA has provided several efficiency measures such as technical, allocative, cost, technical and scale efficiency that explain efficiency differentials of different banks in Bangladesh. The DEA results show that Islamic banks are slightly more efficient than conventional bans. While, among the conventional banks, public conventional banks are the least efficient. The returns to scale estimation show that both conventional and Islamic banks in Bangladesh have still scope of improvement in scale efficiency. Second stage regression results also indicate that Return on Asset (ROA) have significant contribution on efficiency level of the private commercial banks. It is also revealed that first-generation banks are efficient over second, third and fourth generation banks; while second generation banks are better than third and fourth generation banks.