Determinants of Commercial Bank Efficiency? Evidence from Bangladesh

Abstract

First, this paper investigated the technical efficiency (TE) of the banking industry of Bangladesh during 2008-2015 employing the two stage Data Development Analysis (DEA) method. Results of the overall technical efficiency (TE) score ranged between 96.7 percent and 98.6 percent during 2008-2012 which suggested that the technical inefficiency of the banking sector of Bangladesh ranged between 3.3 percent and 1.4 percent. The results of the pure technical efficiency (PTE) score known as managerial efficiency showed that the average (PTE) of the banking industry fluctuated between 98.1 percent and 99.3 percent during 2008-2012. The PTE efficiency dominated the TE during 2008-2012. Secondly, the paper applied Tobit regression in determining factors that significantly affected technical efficiencies of the Bangladesh banking industries.

The Probit results of CAMEL and other bank internal factors showed that both the CAMEL model and the CAMEL Plus model provides an important explanation for both TE and PTE. This paper found, among factors, capital adequacy (EQTA), asset quality (LLOSSTA), and bank profitability (ROA) were significant factors for TE and PTE of the Bangladesh banking industry. Among bank internal factors, bank size (logTA) and bank branches (Branch) were significant determinants for bank efficiency. The paper provided the policy implication for bank management.