Cost and Profit Efficiency of Bangladeshi Commercial Banks: A Stochastic Frontier Approach
International Journal of Economic Behavior and Organization
Volume 5, Issue 6, December 2017, Pages: 131-142
Received: May 9, 2017; Accepted: May 25, 2017; Published: Dec. 19, 2017
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Bellal Hossain Raju Md., Department of Finance, University of Dhaka, Dhaka, Bangladesh
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This paper assesses the cost and profit efficiency levels of banks consist of conventional, Islamic Shariah based and state-owned commercial banks in Bangladesh over the period of 2011 to 2015. Basic accounting ratios and stochastic cost and profit approaches originated by stochastic frontier analysis have been used in this study. From the results of accounting-based ratios used in this study, conventional private commercial banks are more efficient compared to Islamic Shariah based private commercial banks and state-owned commercial banks in the both cases of cost and profit. According to the stochastic cost frontier approach, the commercial banks in Bangladesh are not found considerable cost inefficient. The cost efficiency level of 35 commercial banks in Bangladesh is 91.4 percent. The results of this study indicate that traditional private commercial banks are more cost efficient compared to Islamic Shariah based and state-owned commercial banks. From the results of stochastic profit efficiency frontier, the conventional private commercial banks have the higher values of alternative profit efficiency levels than the state-owned and Islamic Shariah based commercial banks. It can also be drawn that around one-fourth of profits of banks are lost because of inefficiency over the period covered by this study.
Cost Efficiency, Profit Efficiency, Accounting Ratios, Stochastic Cost Frontier Approach, Stochastic Profit Frontier Approach, Commercial Banks, Bangladesh
To cite this article
Bellal Hossain Raju Md., Cost and Profit Efficiency of Bangladeshi Commercial Banks: A Stochastic Frontier Approach, International Journal of Economic Behavior and Organization. Vol. 5, No. 6, 2017, pp. 131-142. doi: 10.11648/j.ijebo.20170506.13
Copyright © 2017 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License ( which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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