Cost and Profit Efficiency of Bangladeshi Commercial Banks: A Stochastic Frontier Approach

Bellal Hossain Raju Md.

doi:doi:10.11648/j.ijebo.20170506.13

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Cost and Profit Efficiency of Bangladeshi Commercial Banks: A Stochastic Frontier Approach

Bellal Hossain Raju Md.

Received: 9 May 2017 Accepted: 25 May 2017 Published: 19 December 2017

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Abstract

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.

DOI	10.11648/j.ijebo.20170506.13
Published in	International Journal of Economic Behavior and Organization (Volume 5, Issue 6, December 2017)
Page(s)	131-142
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Cost Efficiency, Profit Efficiency, Accounting Ratios, Stochastic Cost Frontier Approach, Stochastic Profit Frontier Approach, Commercial Banks, Bangladesh

References

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[7]	Srinivasan, A. & Wall, L. D. (1992), “Cost Savings Associated with Bank Mergers”, Working Paper No. 92-2, Federal Reserve Bank of Atlanta, 32, 1251-1266.
[8]	Cornett, M. M. & Tehranian, H. (1992), “Changes in Corporate Performance Associated with Bank Acquisition”, Journal of Financial Economics, 31, 211-234.
[9]	Berger, A. N., Hunter, W. C. & Timme, S. G. (1993), “The Efficiency of Financial Institutions: A Review and Preview of Past, Present, and Future”, Journal of Banking and Finance, 17, 221-249.
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[11]	Meesun, W. & Broeck, J. V. D. (1977), “Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error”, International Economic Review, 18 (2), 435-444.
[12]	Ferrier, G. D., & Lovell, C. K. (1990), “Measuring Cost Efficiency in Banking: Econometrics and Linear Programming Evidence”, Journal of Econometrics, 46, 229-245.
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[14]	Yildirim, H. S. & Philippatos, G. C. (2007), “Efficiency of Banks: Recent Evidence from the Transition Economies of Europe, 1993-2000”, The European Journal of Finance, 13 (2), 123-143.
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[17]	Bangladesh Bank, at www.bangladesh-bank.org/fnansys/bankfi, April 01, 2017.
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Bellal Hossain Raju Md. (2017). Cost and Profit Efficiency of Bangladeshi Commercial Banks: A Stochastic Frontier Approach. International Journal of Economic Behavior and Organization, 5(6), 131-142. https://doi.org/10.11648/j.ijebo.20170506.13

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ACS Style

Bellal Hossain Raju Md. Cost and Profit Efficiency of Bangladeshi Commercial Banks: A Stochastic Frontier Approach. Int. J. Econ. Behav. Organ. 2017, 5(6), 131-142. doi: 10.11648/j.ijebo.20170506.13

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AMA Style

Bellal Hossain Raju Md. Cost and Profit Efficiency of Bangladeshi Commercial Banks: A Stochastic Frontier Approach. Int J Econ Behav Organ. 2017;5(6):131-142. doi: 10.11648/j.ijebo.20170506.13

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@article{10.11648/j.ijebo.20170506.13,
  author = {Bellal Hossain Raju Md.},
  title = {Cost and Profit Efficiency of Bangladeshi Commercial Banks: A Stochastic Frontier Approach},
  journal = {International Journal of Economic Behavior and Organization},
  volume = {5},
  number = {6},
  pages = {131-142},
  doi = {10.11648/j.ijebo.20170506.13},
  url = {https://doi.org/10.11648/j.ijebo.20170506.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijebo.20170506.13},
  abstract = {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.},
 year = {2017}
}

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TY  - JOUR
T1  - Cost and Profit Efficiency of Bangladeshi Commercial Banks: A Stochastic Frontier Approach
AU  - Bellal Hossain Raju Md.
Y1  - 2017/12/19
PY  - 2017
N1  - https://doi.org/10.11648/j.ijebo.20170506.13
DO  - 10.11648/j.ijebo.20170506.13
T2  - International Journal of Economic Behavior and Organization
JF  - International Journal of Economic Behavior and Organization
JO  - International Journal of Economic Behavior and Organization
SP  - 131
EP  - 142
PB  - Science Publishing Group
SN  - 2328-7616
UR  - https://doi.org/10.11648/j.ijebo.20170506.13
AB  - 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.
VL  - 5
IS  - 6
ER  -

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Author Information

Bellal Hossain Raju Md.

Department of Finance, University of Dhaka, Dhaka, Bangladesh

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APA Style

Bellal Hossain Raju Md. (2017). Cost and Profit Efficiency of Bangladeshi Commercial Banks: A Stochastic Frontier Approach. International Journal of Economic Behavior and Organization, 5(6), 131-142. https://doi.org/10.11648/j.ijebo.20170506.13

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ACS Style

Bellal Hossain Raju Md. Cost and Profit Efficiency of Bangladeshi Commercial Banks: A Stochastic Frontier Approach. Int. J. Econ. Behav. Organ. 2017, 5(6), 131-142. doi: 10.11648/j.ijebo.20170506.13

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AMA Style

Bellal Hossain Raju Md. Cost and Profit Efficiency of Bangladeshi Commercial Banks: A Stochastic Frontier Approach. Int J Econ Behav Organ. 2017;5(6):131-142. doi: 10.11648/j.ijebo.20170506.13

Copy | Download

@article{10.11648/j.ijebo.20170506.13,
  author = {Bellal Hossain Raju Md.},
  title = {Cost and Profit Efficiency of Bangladeshi Commercial Banks: A Stochastic Frontier Approach},
  journal = {International Journal of Economic Behavior and Organization},
  volume = {5},
  number = {6},
  pages = {131-142},
  doi = {10.11648/j.ijebo.20170506.13},
  url = {https://doi.org/10.11648/j.ijebo.20170506.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijebo.20170506.13},
  abstract = {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.},
 year = {2017}
}

Copy | Download

TY  - JOUR
T1  - Cost and Profit Efficiency of Bangladeshi Commercial Banks: A Stochastic Frontier Approach
AU  - Bellal Hossain Raju Md.
Y1  - 2017/12/19
PY  - 2017
N1  - https://doi.org/10.11648/j.ijebo.20170506.13
DO  - 10.11648/j.ijebo.20170506.13
T2  - International Journal of Economic Behavior and Organization
JF  - International Journal of Economic Behavior and Organization
JO  - International Journal of Economic Behavior and Organization
SP  - 131
EP  - 142
PB  - Science Publishing Group
SN  - 2328-7616
UR  - https://doi.org/10.11648/j.ijebo.20170506.13
AB  - 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.
VL  - 5
IS  - 6
ER  -

Copy | Download