Cost and Profit Efficiency Analysis of Commercial Banks in Bangladesh Using Stochastic Frontier Approach

[vc_row][vc_column width=”1/4″][vc_single_image image=”11608″ img_size=”684×1000″][/vc_column][vc_column width=”3/4″ css=”.vc_custom_1683003920554{margin-top: -50px !important;}”][thim-heading title=”Cost and Profit Efficiency Analysis of Commercial Banks in Bangladesh Using Stochastic Frontier Approach” title_uppercase=”” size=”h3″ title_custom=”custom” font_weight=”” clone_title=”” line=””][vc_row_inner][vc_column_inner width=”1/2″][vc_column_text] Md. Asif Nawaz¹, Tasneema Khan²
Published: 21 August, 2022[/vc_column_text][/vc_column_inner][vc_column_inner width=”1/2″][vc_column_text]Journal of Banking & Financial Services
Volume 14 Number 1 & 2 December 2022
DOI : https://doi.org/10.57143/JBFS130104
ISSN : 1990-5157[/vc_column_text][/vc_column_inner][/vc_row_inner][vc_column_text]

Abstract

This study aims to measure the efficiency of the commercial banksin Bangladesh using the Battese and Coelli (1995) model of Stochastic Frontier Analysis (SFA) approach. This is a widely used one-stepmodel, which allows for the estimation of bank efficiencyby taking the inefficiency-effecting exogenous factors into account. Using an unbalanced panel of 287 observations from 32 banks for the period 2011-2020, we found that on average the commercial banks are 91.64% cost-efficient and 79.21% profit-efficient and both cost and profit efficiency decreased during the COVID-19 period. Furthermore, we found that-private banks are more cost and profit efficient than state-owned banks; foreign banks are more profit-efficient but less cost-efficient than domestic banks;banks established between 1991-2000 are more cost-efficient while banks established between 2001-2010 are more profit-efficient when compared to their counterparts; old banks are less profit efficient than the new banks; and finally, expectedly, large banks are found to be more profit-efficient than small banks.

Keywords: Cost Efficiency, Profit Efficiency, Stochastic Frontier Analysis, Commercial banks[/vc_column_text][vc_column_text]Notes on Contributor
Assistant Professor, Department of Banking and Insurance, University of Dhaka
Assistant Professor, Department of Banking and Insurance, University of Dhaka
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