Journal of Applied Finance & Banking

Do Private Commercial Banks Outperform State-owned Commercial Banks? Empirical Evidence from Bangladesh

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  • Abstract

    The paper seeks to measure and compare the performance of state-owned commercial banks, conventional private commercial banks and Islamic commercial banks operating in Bangladesh during 2009-2014 using the Data Envelopment Analysis (DEA). It uses a sample of 19 commercial banks comprising four state-owned banks, ten conventional private commercial banks and five Islamic commercial banks. The paper shows that the average technical efficiency scores of state-owned banks, conventional private banks and Islamic banks are 0.8592, 0.9419 and 0.9569 respectively. This means that state-owned banks experience highest inefficiency of 14.08% followed by conventional private commercial banks (5.81%) and Islamic banks (4.42%). It is also found that state-owned banks and Islamic banks face technical inefficiency due mainly to scale inefficiency while technical inefficiency of conventional private commercial banks is attributed mainly to pure technical inefficiency. The efficiency results suggest that state-owned commercial banks and Islamic banks need to improve their technical by enhancing scale efficiency. Conventional private banks may improve their technical efficiency by upgrading managerial performance.

    JEL Classifications Numbers: C14, C61, G21
    Keywords: Efficiency, Data Envelopment Analysis, Commercial Banks, Bangladesh.