Abstract
This paper examines the efficiency of the thirty-six commercial banks (27 Domestic and 9 Foreign Banks) by reviewing Literature and analyzing 6 years (2011-2016) data. The sample was selected based on the availability of data. It is assumed that the banking sector complies with the variable returns to scale (VRS) approach which means the output of a bank is not proportionately related to its inputs. Therefore, VRS in the ‘Data Envelop Analysis (DEA)’ technique has been employed in this paper. The findings reveal that most (30 banks out of 36 banks) of the banks of Bangladesh are inefficient in terms of technical, allocative, and scale efficiency during the 2011-2016 periods. Conversely, only six banks (4 domestic banks and 2 foreign banks) were found efficient in overall scores in this scrutinization. This study did not find any single bank as efficient in all categories (allocative efficiency, technical efficiency, pure efficiency ratio) for the whole study period (2011-2016). This paper provides valuable intuition, analysis, and comments to the managers and policymakers of the bank’s efficiency score so that they comprehend their position. Finally, this paper suggests necessary steps to transform the inefficient banks into efficient banks, and to make stable the banking sector of Bangladesh.
 JEL Classification Codes: E51, G21, M1.
Highlights
Bangladesh is the 35th largest economy in the world having $2227 per capita national income according to International Monetary Fund (2021), The Financial Express (2021), and Hossain and Wadood (2020)
It includes the output oriented efficiency scores obtained from the variable returns to scale (VRS) and CRS model applied to the 36 commercial banks in Bangladesh
The overall bank efficiency indicates the combination of all efficiency such as allocative efficiency, technical efficiency, pure efficiency, and scale efficiency, etc. according to the Data Envelopment Analysis (DEA) method
Summary
Bangladesh is the 35th largest economy in the world having $2227 per capita national income according to International Monetary Fund (2021), The Financial Express (2021), and Hossain and Wadood (2020). The economy’s real sector comprises the agriculture and Industry sector respectively. The industry sector contributes the largest portion (24.18%) to GDP in Bangladesh followed by the agriculture and forestry sector (9.83%) respectively according to BER (2020). The financial sector consists of monetary intermediation like Banks, Insurance companies, and other financial auxiliaries such as Non-bank Financial Institutions and Microfinance institutions. 61 banks, 34 Non-bank Financial Institutions, 62 Insurance companies, and 702 microfinance Institutions are providing financial services in Bangladesh according to the report of Bangladesh Bank, 2021, (MRA, 2020). The banking industry of Bangladesh comprises 61 scheduled banks in which 58 are commercial banks including 10 full-fledged Islamic banks while 3 are a specialized bank) and 5 non-scheduled banks. Table-1 highlights the structure of the banking sector of Bangladesh (Bangladesh Bank, 2021)
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