A stochastic frontier model on measuring online bank deposits efficiency

Abstract

An attempt has been made to investigate the online bank specific deposits efficiency using stochastic frontier technique and it intends to determine various factors affecting the efficiency level of banks for the period 2001 - 2007. We used a panel of 20 banks divided into four groups namely, NBs (National Banks), ISBs (Islamic Banks), FBs (Foreign Banks), and PBs (Private Banks) in Bangladesh. In this study, a comparison was made with the efficiency scores of banks group-wise, year-wise and individually. This study showed that the estimated year-wise average online banks deposits efficiency was 0.738 while group-wise average deposits efficiency was 0.777. At the bank group level, Nationalized Commercial Banks (NBs) and Islamic Banks (ISBS) were more efficient by 90.9 and 86.8% respectively, followed by Private Banks (PBs) which had 63.4% and Foreign Banks (FBs), 62.7%. We observed that the foreign banks were less efficient in producing deposits. However, the overall deposits efficiency of all bank groups steadily increased over time except in 2007. The most efficient bank was found to be Islami Bank Ltd. and the most inefficient bank was Pubali Bank with efficiency scores of 0.96 and 0.52, respectively. Key words: Deposits efficiency, stochastic frontier analysis, banking industry.