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REPORT ON
How Efficient the Bangladeshi Banks
are:
A Data Envelopment Analysis (DEA)
Approach
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PATUAKHALI SCIENCE AND TECHNOLOGY
UNIVERSITYHow Efficient the Bangladeshi Banks are: A Data
Envelopment Analysis (DEA) Approach
Prepared for
M. Takibur Rahman
LecturerDepartment of Accounting & Information System
Faculty of Business Administration and Management
Prepared by
Group: 01(Warrior)
Level- 4, Semester- II
Faculty of Business Administration and Management
International Finance
Course Code: FIN-422
Date of submission: 19th December 2009
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PATUAKHALI SCIENCE AND TECHNOLOGY
UNIVERSITY
Attendance Report
Level: 4
Semester: II
Course Code: FIN-422
Course Title: International FinanceDate of Preparation: 19 December, 2009
Evaluation Details
ExamRoll
ClassRoll
Name of the
students
Registration
Signature
Preparation
(5)
Presentation
(10)
Examination
QA(5)
Total marks
obtained
01 001Md.Kamruzzaman
00675
06 009 Shuvradeb Barai 00668
15 021 Abu Zafour 00680
17 023 Shofiq Uddin Khan 00682
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Date: 19 December 2009
To
M. Takibur Rahman
Lecturer
Department of Accounting & Information System
Faculty of Business Administration and Management
Subject: Letter of Transmittal
Dear Sir,
Here is the report on How Efficient the Bangladeshi Banks are: A
Data Envelopment Analysis (DEA) Approach you asked us to
prepare this report as a course requirement of International
Finance.
This report focuses on the efficiency of Bangladeshi Banks
broadly the National. We have tried our level best to make the
report informative and fruitful. For any classification we will be
available and looking for such term paper in coming days. We are
very happy for getting such type of report from you.
Sincerely Yours
Group: 01(Warrior)
Level-4, Semester-II
Faculty of Business Administration and Management
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Acknowledgment
At first we desire to express our deepest sense of gratitude of almighty
Allah.
With profound regard we gratefully acknowledge our respected course
teacher M. Takibur Rahman, Department of Accounting & Information
System, Faculty of Business Administration and Management for his
generous help and day to day suggestion during the survey.
We like to give thanks especially to our friends & many individuals, for
their enthusiastic encouragements and helps during the preparation of
this report and for their assistance in typing and proofreading this
manuscript.
Executive Summary
This report is an assigned job as a partial fulfillment of course
requirement by honorable Course teacher M. Takibur Rahman,
Department of Accounting & Information System, Faculty of Business
Administration and Management, Patuakhali Science and Technology
University. It is the optimum aggregated outcome of 4 pupils about
How Efficient the Bangladeshi Banks are: A Data Envelopment
Analysis (DEA) Approach. The view of this report is to find out the
efficiency and effectiveness of Banking Company of Bangladesh broadly
the National Banks. According to our report we try to found the efficiency
level of the selected Banks. For improving the efficiency, this report has
assisted conducting several studies on banking sector reform in
Bangladesh.
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Table of Contents
CHAPTER I
Abstract 01
Introduction 01
Origin of the report 02
Purpose of the report 02
Scope of the Report 02
Methodology of the report 03
Limitation of the report
04 Literature of Review
05
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Abstract
Improving the efficiency of the banking sector has been considered an
important issue in Bangladesh. In 1986, the Government formed the
national commission on money banking and credit to find solutions forefficient operation and management of the banking system. In addition, in
1991 a taskforce was formed to formulate strategies to promote the
development of banking and financial sector. Bangladesh Bank (BB)
continued to focus on strengthening the financial system and improving
functioning of the various segments. The broad parameters of the reforms
undertaken during the year comprised ongoing deregulation of the
operation of institutions within the BB's regulatory ambit, tightening of
prudential regulation and improvement in supervisory oversight,
expanding transparency and market disclosure, all with a view toimproving overall efficiency and stability of the financial system.
Inefficiency in the use of resources, tolerance of waste and slothfulness
CHAPTER II
An Overview of the Bangladesh Banking Sector 06
Nationalized Commercial Banks 06
Private Commercial Banks 07
Methods of Evaluating the Efficiency of Banks 08
Data Envelopment Analysis (DEA) 08
Overview of Nationalized Commercial Banks 12
Four Nationalized Bank of Bangladesh at a Glance 14
Performance of Performance of Public Sector
Banksof Bangladesh during 2007-2008
15
Efficiency (Inputs) of Banks of Bangladesh19
Efficiency (Outputs) of Banks of Bangladesh 20
Chapter-III
Conclusion 24
Reference 24
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also contributes to low productivity as often reflected in high spread. This
paper is attempts to measure the efficiency of Bangladeshi public sector
banks during 2007-2008 using the variety of efficiency measures
computed by the nonparametric method. This paper investigates the
efficiency of public sector banks in Bangladesh using data envelopment
analysis.
Introduction
Efficiency of banking sectors is too much important for a country. For
improving the efficiency, the World Bank has assisted conducting several
studies on banking sector reform in Bangladesh. Based on the
experienced during the 1986-1991 periods and suggestions from World
Banks studies, the Central Bank of Bangladesh (CBB) has adopted
further reforms such as strengthening the role of the central bank insupervision and regulation. The need for further improvement of the
banking sector continues. Recently, the Governor of CBB stressed the
need for an efficient banking sector. The CBB also urged that more
research on the banking sector of Bangladesh to be conducted.
Meanwhile, no previous study, to the best of our knowledge, has
examined the efficiency of commercial banks in Bangladesh. To fill in the
gap of research, this study is conducted to measure and to analyze the
efficiency of commercial banks in Bangladesh. The main objective of this
study is to analyze the efficiency of public sector banks of Bangladeshand identify determinants of efficiency.
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Origin of the report
We are lucky to say that our honorable course teacher M. Takibur
Rahman, Lecturer, Department of Accounting and Information System,Faculty of Business Administration and Management, assigned us a report
on How Efficient the Bangladeshi Banks are: A Data
Envelopment Analysis (DEA) Approach. The data required for the
preparing this report has been collected from the annual reports of
Bangladesh bank and annual reports of other banks of Bangladesh during
2007-20008.
Purpose of the Report
The purpose of the study was to measure the efficiency of different banks
in Bangladesh during 2007-2008. The major objectives of this study are
stated as follows:
To perform comparative efficiency studies of the Public Sectors
Banks in Bangladesh
To allocate resources more efficiently
To identify potential improvements
To perform reference comparison and reference contribution
To obtain information for planning strategy
To identify under achievers and star performers
To obtain reference set frequency distribution graph To perform overall improvement summary.
Scope of the Study
This study has focused upon the efficiency of the banking sectors of
Bangladesh. How the Bangladeshi Banks are performed their
activities efficiently and effectively. We hope this study will help us
to know more clearly about the performance of different banks of
Bangladesh.
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Methodology of the Report
Efficiency analysis methods can be classified into two main approaches,namely, parametric approach and non-parametric approach. The
parametric approach such as Stochastic Frontier Analysis (SFA) was
characterized with a composite error term of the estimated production
function. This composite error term consists of a random error
component and a non-negative inefficiency component. The non-
parametric approach such as Data Development Analysis (DEA) is a data-
driven approach. DEA involves the calculation of efficiency by comparing
the inputs/outputs ratio of each firm with a piecewise surface,
representing fully efficient operation, constructed from the data set bylinear programming. In this paper we use Non-parametric approach.
Improving the efficiency of the banking sector has been considered an
important issue in Bangladesh. Its plays a significant role for the
economic development of a country. This report mainly focuses on the
state owned banks in Bangladesh that means Nationalized Commercial
Banks. This report is prepared based on the only secondary data. We
collect required information from the annual report of Bangladesh bank,and four states owned commercial banks during 2007-2008. Here we
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divided our required information into two aspects, such as input data and
output data. The following inputs and outputs have been selected for the
study:
1. Input data
2. Output data
1. Input data
Number of branches
Number of employees
Interest expense/total assets (Int. exp/ T.A.)
Operating expense/total assets (Op. exp/ T.A.)
2. Output data
Interest income/total assets (Int. Inc/ T.A.)
Spread
*
/total assets (Spread/ T.A.) Net profit/total assets (N.P. / T.A.)
Gross profit/total assets (G.P/ T.A.)
* Spread = Interest income Interest expense
Then we analyze those data from many angles, in different aspect andpresent the information in different segment according to their category,
in compact way. We highlight different important things, which we found
during study period. After doing all of those we submit the report to the
proper authority.
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Limitations of the Report
As a student of faculty of Business Administration and Management, 8th
semester, this is our initiative for making a report on How Efficient the
Bangladeshi Banks are: A Data Envelopment Analysis (DEA)
Approach through using its Annual Report of Bangladesh Bank, andalso annual report Agrani Bank, Sonali Bank, Ruupali Bank and Jjanata
Bank. Beside this we have faced the following hindrances in preparing
this report:
Lack of knowledge and experience
Short of time
Lack of computer facilities
Lack of sufficient privileges
Lack of communication facilities
Lack of adequate information
This is our truthful declaration that the report is prepared on secondary
data. But in some cases, we found the problem of shortage of necessary
data and that cases we will take hypothetical data, so there is a little
chance of misappropriation.
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Literature of Review
The study on the efficiency of financial institution is now quite largely
happening in the recent origin. Several effective work are already been
occurred depending on various factors and circumstances and it will help
the financial institution to become more effective and advanced than the
any previous worse situation. Banks are the main financial institution andseveral works and already been occurred to measuring their efficiency.
Frontier inefficiency, some time called X-efficiency, at financial
institutions accounts for a considerable portion of the total costs are a
much greater sources of performance problems than either scale or
product mix inefficiencies and have a strong empirical association with
hither probabilities of failures(Bauer et. Al. 1998).
Shameem, A.K.M. prepare an important report on Impact of FlexibleInterest Rate on Savings and Investment, which effectively measure the
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effectiveness of the saving and investing opportunity of the different
financial institution basically bank.
Another important study work is done by Berger, A.N. and D.B. Humphrey
(1997), on Bangladesh Journal of Political Economy named Efficiency ofFinancial Institutions: International Survey and Directions for Future
Research.
In another group of studies, bank efficiency measured b a number of
financial indicators and compared over various categories of banks. For
example Sarkar et. Al. (1998) considered three bank groups-public,
Bangladeshi private and foreign- for comparison purpose. After
controlling for effects of some concomitant variables, they conductedregressing analysis to find that effect of ownership type on different
efficiency measures. Rammohan (2002, 2003) also used financial
measures for comparing operational performance of different categories
of banks over a period of time.
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An Overview of the Bangladesh Banking Sector
The banking sector in Bangladesh comprises four types of banks,
including nationalized commercial banks (NCBs), government-owned
specialized banks (DFIs), private commercial banks (PCBs), and foreign
commercial banks (FCBs). There are 48 banks in Bangladesh. These
banks had a total number of 6717 branches as of 2008. The number of
bank branches increased in compare to the previous year from 6562 to
6717 owing to opening of new branches by the PCBs during the year.
List of banks in Bangladesh
The commercial banking system dominates Bangladesh's financial sector.
Bangladesh Bank is the Central Bank of Bangladesh and the chief
regulatory authority in the sector. The banking system consists of four
nationalized commercial Banks, around forty private commercial
banks, nine foreign multinational banks and some specialized banks.
The Nobel-prize winning Grameen Bank is a specialized micro-
finance institution, which revolutionized the concept of micro-credit
and contributed greatly towards poverty reduction and the
empowerment of women in Bangladesh.
Nationalized Commercial Banks
The banking system of Bangladesh is dominated by the 4 Nationalized
Commercial Banks, which together controlled more than 54% of
deposits and operated 3388 branches (54% of the total) as of
December 31, 2004. The nationalized commercial banks are:
Sonali Bank Janata BankAgrani Bank Rupali Bank
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http://en.wikipedia.org/wiki/Bangladesh_Bankhttp://en.wikipedia.org/wiki/Grameen_Bankhttp://en.wikipedia.org/wiki/Sonali_Bankhttp://en.wikipedia.org/wiki/Janata_Bankhttp://en.wikipedia.org/wiki/Agrani_Bankhttp://en.wikipedia.org/wiki/Rupali_Bankhttp://en.wikipedia.org/wiki/Bangladesh_Bankhttp://en.wikipedia.org/wiki/Grameen_Bankhttp://en.wikipedia.org/wiki/Sonali_Bankhttp://en.wikipedia.org/wiki/Janata_Bankhttp://en.wikipedia.org/wiki/Agrani_Bankhttp://en.wikipedia.org/wiki/Rupali_Bank8/14/2019 Int. Finance (Main)
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Foreign Banks Specialized BanksCitibank na Grameen BankHSBC Bangladesh Krishi BankStandard Chartered
Bank
Bangladesh Shilpa Bank
Commercial Bank ofCeylon Rajshahi Krishi Unnayan Bank
State Bank of India Bangladesh Shilpa Rin SangsthaHabib Bank Basic Bank Ltd (Bank of Small Industries and
Commerce)National Bank of
Pakistan
Bangladesh Somobay Bank Limited(Cooperative
Bank)Woori Bank Ansar VDP Unnyan BankBank AlfalahICB Islami Bank
Private Commercial Banks
Private Banks are the highest growth sector due to the dismal
performances of government banks. They tend to offer better service and
products.
Private Commercial BanksAB Bank Ltd BRAC Bank LimitedEastern Bank Limited Dutch Bangla Bank LimitedDhaka Bank Limited Islami Bank Bangladesh LtdPubali Bank Limited Uttara Bank LimitedIFIC Bank Limited National Bank LimitedThe City Bank Limited United Commercial Bank LimitedNCC Bank Limited Prime Bank LimitedSouthEast Bank Limited Al-Arafah Islami Bank LimitedSocial Islami Bank Limited Standard Bank LimitedOne Bank Limited Exim Bank LimitedMercantile Bank Limited Bangladesh Commerce Bank
LimitedMutual Trust Bank Limited First Security Islami Bank LimitedThe Premier Bank Limited Bank Asia Limited
Page 16
http://en.wikipedia.org/w/index.php?title=Citibank_na&action=edit&redlink=1http://en.wikipedia.org/wiki/Grameen_Bankhttp://en.wikipedia.org/wiki/HSBChttp://en.wikipedia.org/w/index.php?title=Bangladesh_Krishi_Bank&action=edit&redlink=1http://en.wikipedia.org/wiki/Standard_Chartered_Bankhttp://en.wikipedia.org/w/index.php?title=Bangladesh_Shilpa_Bank&action=edit&redlink=1http://en.wikipedia.org/wiki/Standard_Chartered_Bankhttp://en.wikipedia.org/w/index.php?title=Bangladesh_Shilpa_Bank&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Bangladesh_Shilpa_Bank&action=edit&redlink=1http://en.wikipedia.org/wiki/Commercial_Bank_of_Ceylonhttp://en.wikipedia.org/wiki/Rajshahi_Krishi_Unnayan_Bankhttp://en.wikipedia.org/wiki/Commercial_Bank_of_Ceylonhttp://en.wikipedia.org/wiki/Rajshahi_Krishi_Unnayan_Bankhttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/w/index.php?title=Bangladesh_Shilpa_Rin_Sangstha&action=edit&redlink=1http://en.wikipedia.org/wiki/Habib_Bankhttp://en.wikipedia.org/w/index.php?title=Basic_Bank_Ltd&action=edit&redlink=1http://en.wikipedia.org/wiki/National_Bank_of_Pakistanhttp://en.wikipedia.org/w/index.php?title=Bangladesh_Somobay_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/wiki/National_Bank_of_Pakistanhttp://en.wikipedia.org/w/index.php?title=Bangladesh_Somobay_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/wiki/Woori_Bankhttp://en.wikipedia.org/w/index.php?title=Ansar_VDP_Unnyan_Bank&action=edit&redlink=1http://en.wikipedia.org/wiki/Bank_Alfalahhttp://en.wikipedia.org/w/index.php?title=ICB_Islami_Bank&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=AB_Bank_Ltd&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Brac_Bank_Ltd&action=edit&redlink=1http://en.wikipedia.org/wiki/Eastern_Bank_Ltdhttp://en.wikipedia.org/wiki/Dutch_Bangla_Bankhttp://en.wikipedia.org/wiki/Dhaka_Bank_Limitedhttp://en.wikipedia.org/w/index.php?title=Islami_Bank_Bangladesh_Ltd&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Pubali_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Uttara_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/wiki/IFIC_Bank_Limitedhttp://en.wikipedia.org/wiki/National_Bank_(Bangladesh)http://en.wikipedia.org/w/index.php?title=The_City_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=United_Commercial_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=NCC_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/wiki/Prime_Bank_Limitedhttp://en.wikipedia.org/w/index.php?title=SouthEast_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Al-Arafah_Islami_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Social_Islami_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Standard_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=One_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Exim_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Mercantile_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Bangladesh_Commerce_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Bangladesh_Commerce_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Mutual_Trust_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=First_Security_Islami_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=The_Premier_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Bank_Asia_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Citibank_na&action=edit&redlink=1http://en.wikipedia.org/wiki/Grameen_Bankhttp://en.wikipedia.org/wiki/HSBChttp://en.wikipedia.org/w/index.php?title=Bangladesh_Krishi_Bank&action=edit&redlink=1http://en.wikipedia.org/wiki/Standard_Chartered_Bankhttp://en.wikipedia.org/wiki/Standard_Chartered_Bankhttp://en.wikipedia.org/w/index.php?title=Bangladesh_Shilpa_Bank&action=edit&redlink=1http://en.wikipedia.org/wiki/Commercial_Bank_of_Ceylonhttp://en.wikipedia.org/wiki/Commercial_Bank_of_Ceylonhttp://en.wikipedia.org/wiki/Rajshahi_Krishi_Unnayan_Bankhttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/w/index.php?title=Bangladesh_Shilpa_Rin_Sangstha&action=edit&redlink=1http://en.wikipedia.org/wiki/Habib_Bankhttp://en.wikipedia.org/w/index.php?title=Basic_Bank_Ltd&action=edit&redlink=1http://en.wikipedia.org/wiki/National_Bank_of_Pakistanhttp://en.wikipedia.org/wiki/National_Bank_of_Pakistanhttp://en.wikipedia.org/w/index.php?title=Bangladesh_Somobay_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/wiki/Woori_Bankhttp://en.wikipedia.org/w/index.php?title=Ansar_VDP_Unnyan_Bank&action=edit&redlink=1http://en.wikipedia.org/wiki/Bank_Alfalahhttp://en.wikipedia.org/w/index.php?title=ICB_Islami_Bank&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=AB_Bank_Ltd&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Brac_Bank_Ltd&action=edit&redlink=1http://en.wikipedia.org/wiki/Eastern_Bank_Ltdhttp://en.wikipedia.org/wiki/Dutch_Bangla_Bankhttp://en.wikipedia.org/wiki/Dhaka_Bank_Limitedhttp://en.wikipedia.org/w/index.php?title=Islami_Bank_Bangladesh_Ltd&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Pubali_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Uttara_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/wiki/IFIC_Bank_Limitedhttp://en.wikipedia.org/wiki/National_Bank_(Bangladesh)http://en.wikipedia.org/w/index.php?title=The_City_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=United_Commercial_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=NCC_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/wiki/Prime_Bank_Limitedhttp://en.wikipedia.org/w/index.php?title=SouthEast_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Al-Arafah_Islami_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Social_Islami_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Standard_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=One_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Exim_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Mercantile_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Bangladesh_Commerce_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Bangladesh_Commerce_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Mutual_Trust_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=First_Security_Islami_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=The_Premier_Bank_Limited&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Bank_Asia_Limited&action=edit&redlink=18/14/2019 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Trust Bank Limited Shahjalal Islami Bank LimitedJamuna Bank Limited
Methods of Evaluating the Efficiency of Banks
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Efficiency analysis mainly classified into two approach, parametric
approach and non-parametric approach. In the following graph shown
the different methods of efficiency analysis
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Data Envelopment Analysis (DEA)
Overview
Efficiency measurement is one aspect of firm performance. Efficiency is
measured with respect to an objective; it can be measured with respect
to maximization of output, maximization of profits, or minimization of
costs. We would like to investigate questions of economic optimization.
For example,
Is the firm minimizing its costs of production given its choice of inputs,
taking input prices as given?
Is the firm maximizing its profits given its choice of inputs and outputs
prices as given?
A firm might be operating on its production frontier i.e. not wasting
resources, and so be technically efficient, but could still be allocativelyinefficient if it is choosing the wrong mix of inputs given the relative
process of those inputs. Similarly, the firm could be technically and
allocatively efficient in producing its chosen level of output, but choosing
the wrong level of output in order to maximize profits.
Data Envelopment Analysis (DEA)
Technique has been used remarkably in recent years to measure
efficiency of firms in the light of above questions.
DEA is a linear programming technique initially developed by Charnes,
Cooper and Rhodes in 1978 to evaluate the efficiency of public sector
non-profit organizations. Sherman and Gold in 1985 were the first to
apply DEA to banking. DEA calculates the relative efficiency sources of
various Decision Making Units (DMUs) in the particular sample. The DMUs
could be banks or branches of banks. The DEA measure compares each
of the banks/ branches in that sample with the best practice in thesample. It tells the user which of the DMUs in the sample are efficient and
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which are not. The ability of the DEA to identify possible peers or role
models as well as simple efficiency scores gives it an edge over other
methods. As an efficient frontier technique, DEA identifies the inefficiency
in a particular DUM by comparing it to similar DMUs regarded as efficient,
rather than trying to associate a DMUs performance with statistical
averages that may not be applicable to that DMU.
DEA is a multi-factor productivity analysis model for measuring the
relative efficiencies of a homogenous set of decision making units
(DMUs). The efficiency score in the pre-efficient multiple input and out
put factors defined as
IntputsofSumWeighted
OutputsofSumWeighted=Efficiency
Benefits and Limitations of DEA Analysis:
DEA offers some benefits to other appearances but it also has some
limitations that have to be kept in the mind when using DEA. Benefits and
limitations of DEA analysis are discussed below:
Benefits
DEA is able to handle multiple inputs and outputs
DEA does not require a functional form that relates inputs and
outputs
DEA optimizes on each individual observation and compares them
against the best practice observations
Limitations
DEA only calculates relative efficiency measures
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As a non comparable technique statistical hypothesis test are quit
different
Different DEA Models
Data envelopment analysis is not just one single methods, this analysis is
a collection of different methods which serve different needs depending
on scale effects, measurement of the distance to the envelopment
surface or the functional form of the envelopment analysis. Usually in
literature four different characteristics of the DEA are differentiated
CCR model (Charnes, Cooper and Rhodes in 1978)
BCC model (Banker, Charnes and Cooper in 1984)
Multiplicative model (Charnes Cooper, Seiford and Stutz in 1983)
Additive model (Charnes, Cooper, Golany, Seiford and Stutz in
1985)
CCR model (Charnes, Cooper and Rhodes in 1978)
The CCR model bases the evaluation on a production technology that has
constant returns to scale (CRS) and radial distance measure to the
efficient frontier i.e. that the inefficiency of a DMU compared to the
corresponding efficient units lying on the efficient border is measured via
a radius vector.
The CCR model is differentiated in input or output orientation, depending
upon reduction of inputs with constant outputs or enhancement of output
with constant input. As a result the CCR models an objective description
of overall efficiency and identifies the sources of inefficiencies.
BCC model (Banker, Charnes and Cooper in 1984)
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In constant to the CCR model the BCC model offers a differentiation
between technical efficiency and scale-efficiency because it evaluates
solutions for non increasing returns to scale (NIRS), non decreasing
returns to scale (NDRS) or variable returns to scale (VRS). With a
combination of the CCR model inefficient CCR DMUs do not have to be
technical inefficient. Potentially a part of this inefficiency can bemitigated by increasing or decreasing the production volume resulting in
a removal of scale inefficiencies. The BCC model also implies a radial
distance measure and a piecewise linear frontier. Like the CCR model the
BCC model also differentiates in and input or outputs orientation.
Multiplicative model (Charnes Cooper, Seiford and Stuz in 1983)
In contrast to the CCR and BCC model the multiplicative model offers a
different characteristic of the efficient frontier by providing a piecewise
log-linear involvement surface or a piecewise Cobb-Douglas
interpretation of the production process. The returns to scale assumption
depend on the envelopment surface:
A log-linear surface assumes constant returns to scale and a Cobb-
Douglas coherence assumes variable return to scale.
Additive model (Charnes, Cooper, Golany, Seiford and Stutz in
1985)
Unlike the CCR or BCC model the additive model is un-oriented that is it
does not differentiate between input and output orientation which means
that a reduction of input with a synchronous enhancement of outputs ispossible. The additive model assumes constant returns to scale and
piecewise linear efficient frontier.
These four models in literature commonly used and described DEA
models build a profound basis for an efficiency analysis with different
returns to scale, different envelopment surfaces and different ways to
project inefficient units to the efficient frontier. During the last few years
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a lot of extensions to these four models have been developed that allow
further fine tuning to the basic models.
Assumption of the Study
The following assumptions are made for the benefit of the study
An output maximization model has been adopted
Variable returns to scale (VRS) has been adopted as using this
option allows the analysis more room to find optimal solution
This is an un-weighted analysis. No weights have been assigned to
any inputs and outputs.
Decision Making Units (DMUs)
The following are the decision making units (DMUs).
Concerning these input and output data the application of the Data
Envelopment Analysis seems to be suitable. Data Envelopment Analysis
uses input and output factors to identify a single relative efficiency
measure to compare a DMU to the best performing organizations. Thismethod does not require monetary inputs and outputs. Further more it
uses combinations of efficiency units to compare inefficient units against
these linear combinations and identifies their relative efficiency scores.
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Overview of Nationalized Commercial Banks
Sonali Bank Limited
Sonali Bank Limited, the largest & leading commercial bank of the
country, came into being in 1972 immediately after the emergence ofBangladesh as an independent state. A fully state-owned enterprise, thebank has been discharging its nation-building responsibilities byundertaking government entrusted different socio-economic schemes aswell as money market activities of its own volition, covering all spheres ofthe economy. Sonali Bank Limited singularly enjoys the prestige of beingthe agent of the Central Bank of Bangladesh in such places where theguardian of the money market has chosen not to act by itself.
Sonali Bank Limited is governed by a Board of Directors consisting of
13(thirteen) members headed by a Chairman. The Bank is headed by theChief Executive Officer & Managing Director, who is a well-known Bankerand a reputed professional. The head office of the bank along with itscorporate structure is located at Motijheel, Dhaka, and the maincommercial center of the capital.
Janata Bank Limited
Janata Bank Limited, one of the state owned commercial banks inBangladesh, has an authorized capital of Tk. 8000 million (approx. US$116.96 million), paid up capital of Tk. 2593.90 million, reserve ofTk.4182.52 million and retained surplus Tk. 2285.94 million. The Bankhas a total asset of Tk. 267157.30 million as on 31st December 2008.Immediately after the emergence of Bangladesh in 1971, the erstwhileUnited Bank Limited and Union Bank Limited were renamed as JanataBank. On 15th November, 2007 the bank has been corporatised andrenamed as Janata Bank Limited.
Janata Bank Limited operates through 850 branches including 4 overseasbranches at United Arab Emirates. It is linked with 1202 foreigncorrespondents all over the world.
The Bank employs more than 13(Thirteen) thousand persons.
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The mission of the bank is to actively participate in the socio- economicdevelopment of the nation by operating a commercially sound bankingorganization, providing credit to viable borrowers, efficiently deliveredand competitively priced, simultaneously protecting depositors fundsand providing a satisfactory return on equity to the owners.
The Board of Directors is composed of 13 (Thirteen) members headed bya Chairman. The Directors are representatives from both public andprivate sectors.
The Bank is headed by the Chief Executive Officer & Managing Director,who is a reputed banker.
The corporate head office is located at Dhaka with 10 (ten) Divisionscomprising of 37 (thirty seven) Departments.
Agrani Bank Limited,
Agrani Bank Limited, a leading commercial bank with 867 outlets
strategically located in almost all the commercial areas throughout
Bangladesh, overseas Exchange Houses and hundreds of overseas
Correspondents, came into being as a Public Limited Company on May
17, 2007 with a view to take over the business, assets, liabilities, rights
and obligations of the Agrani Bank which emerged as a nationalizedcommercial bank in 1972 immediately after the emergence of
Bangladesh as an independent state. Agrani Bank Limited started
functioning as a going concern basis through a Vendors Agreement
signed between the ministry of finance, Government of the People's
Republic of Bangladesh on behalf of the former Agrani Bank and the
Board of Directors of Agrani Bank Limited on November 15, 2007 with
retrospective effect from 01 July, 2007.
Agrani Bank Limited is governed by a Board of Directors consisting of13(thirteen) members headed by a chairman. The Bank is headed by the
Managing Director & Chief Executive Officer; Managing Director is
assisted by Deputy Managing Directors and General Managers. The bank
has 7 Circle offices, 30 Divisions in head office, 52 zonal offices and 903
branches including 10 corporate and 40 AD( authorized dealer) branches.
The corporate and AD branches are authorized to deal in Foreign
exchange business.
Rupali Bank Limited
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Rupali Bank is a commercial bank in Bangladesh. It was established as a
nationalised bank in 1972 under the Bangladesh Banks Nationalisation
Order, through the amalgamation of the branches of Muslim Commercial
Bank, Australasia Bank and Standard Bank that were operating in East
Pakistan, following the 1971 Bangladesh Liberation War. The bank was
denationalised in 1986, and reorganised as a limited company, with theGovernment of Bangladesh holding 51% shares. However, after the year
2000, the Government divested of its shares, and the privatization of the
bank was complete.
Four Nationalized Bank of Bangladesh at a Glance
Sonali Bank LimitedType Public Limited CompanyFounded 1972Headquarters Motijheel, Dhaka, Bangladesh
Area served Bangladesh and OverseasKey people Ali Imam Majumder{Chairman)
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S. A. Chowdhury (CEO & ManagingDirector))
Industry BankingFinancial services
Products Finance and insuranceConsumer BankingCorporate BankingInvestment BankingInvestment Management
Employees 26,085Website http://www.sonalibank.com.bd
Agrani Bank LimitedType Public Limited CompanyFounded March 26, 1972Headquarters Dilkusha commercial area, Dhaka,
BangladeshArea served BangladeshKey people Dr. Khondoker Bazlul Hoque{Chairman)Industry Banking
Financial servicesProducts Finance and insurance
Consumer BankingCorporate BankingInvestment BankingInvestment Management
Employees 13,269Website http://www.agranibank.org
Janata Bank LimitedType Public Limited CompanyFounded 1971Headquarters Motijheel, Dhaka, BangladeshArea served Bangladesh and OverseasIndustry Banking
Financial servicesProducts Finance and insurance
Consumer BankingCorporate BankingInvestment BankingInvestment Management
Employees 13,593Website http://www.janata_bank.com
Rupali Bank LimitedType Public Limited Company
Founded 1972Headquarters Motijheel, Dhaka, Bangladesh
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Area served Bangladesh and OverseasIndustry Banking
Financial servicesProducts Finance and insurance
Consumer BankingCorporate BankingInvestment BankingInvestment Management
Employees 14,500Website http://www.rupali_bank.com
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Performance of Performance of Public Sector Banks of
Bangladesh during 2007-2008
Performance of public sector banks of Bangladesh can be measured by
the different elements. Based on these previously discussed elements,
performance of these banks are shown below by representing different
table, graph and chart.
Table-1: Performance of Public Sector Banks of Bangladesh during 2007-
2008
Inputs Outputs
Sl.
N
o.
Public
Sector
Banks
No. of
Employe
es
No. of
Branch
es
Total
Assets
(million)
Interes
t
Expens
e
(millio
n)
Operati
ng
Expens
e
(million
)
Interes
t
Income
(millio
n)
Spread
(million
)
Net
Profit
(millio
n)
Gross
Profit
(millio
n)
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01 Sona
li
B
a
n
k
26,085 1,183 492,94
6
12,87
9
6,432 26,62
1
13,74
2
1,616 19,67
5
02 Janata
B
a
n
k
13,593 850 267,158
9,307
4,613 12,953
3,646
3,187 11,615
03 Agra
n
i
B
an
k
13,269 903 187,32
6
5,24
1
3,410 9,547 4,30
6
2,646 6,329
04 Rupa
li
B
a
n
k
14,500 875 220,47
1
4,09
8
3,543 8,852 4,75
4
1,996 4,645
Total 67,447 3,811 1,167,9
01
31,5
25
17,99
8
57,97
3
26,4
48
9,445 42,26
4
Table-1 represents the different input and output condition of four
nationalized commercial bank (Sonali Bank, Janata Bank, Agrani Bank,
Rupali Bank). Among these banks Sonali Bank has the highest number of
employees and branches i.e. 26,085 and 1,183 respectively. Side by side
total assets, interest income, spread and gross profit are also highest
than that of other three banks (Janata Bank, Agrani Bank, Rupali Bank).
But this banks income falls during this year than that of previous year
2007. Graph-1 shows the position of these four banks number of
employees and number of branches, and graph-2 shows about the total
assets of these four banks.
Graph-1: Number of branches and employees
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Graph-2: Assets of Nationalized Commercial Banks in Bangladesh
Graph-3 represents the different elements of decision making units
graphically. This graph includes the interest expenses, interest income,
operating expenses, net income and gross profit of these four banks. In
respect to the gross profit Sonali bank is in the best position than other
three banks, Janata bank is in the second position, then Agrani bank and
last on is Rupali bank. But net income of the Sonali Bank is relatively
lower than other three banks. Sonali banks net income also decreases
than that of the previous year about 30 percent.
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Graph-3: Interest, Income and Expenses
Table-2: Performance of Public Sector Banks of Bangladesh during 2007-
2008
Inputs Outputs
Sl.
No.
Public
Sector
Banks
Int.
Exp/T.A. %
Op.
Exp./T.A.
%
Int.
Inc./T.A.
%
Spread/T.A
. %
N.P./T.A.
%
G.P./T.A. %
01 Sonali
Bank
2.61 1.30 5.40 2.79 0.33 3.99
02 Janata
Bank
3.48 1.73 4.85 1.36 1.19 4.35
03 Agrani
Bank
2.80 1.82 5.10 2.30 1.41 3.38
04 Rupali
Bank
1.86 1.61 4.02 2.15 0.91 2.11
The performance of public sectors banks operating in Bangladesh during2007-2008 represented in the Table-2. This table shows the different
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inputs and outputs, and their relative measure. In inputs we calculate
interest expenses of specified banks against the total assets of the
relative bank. Janata Bank represents highest interest (3.48%) expense
against its assets, where as Agrani Banks is 2.807%, Sonali Banks is
2.61% and Rupali Banks represent 1.86%. In case of operating expense
Agrani Bank is 1.82% of its total assets. Then Janata Bank is 1.73%,1.61% and 1.30% for Rupali Bank and Sonali Bank respectively.
In outputs represent the interest income to total assets, spread to total
assets, net profit to total assets and gross profit to total assets. All out
puts calculated in percentage. Sonali bank represents the higher interest
income against total assets, and lower rate in Rupali Bank. In case of
spread to total assets Sonali Bank is in the highest position than that of
other three banks. Janata Bank is in the lowest position among these fourbanks. In respect to the net income Sonali Bank is not in good position
during 2008 because in this year net income of this bank significantly
decreases than that of its previous year. Gross profit of Sonali Bank is
3.99%, Agrani Bank is 3.38%, Janata Bank is 4.35% and Rupali Bank is
2.10%. Janata Bank is in the best position in respect to other banks in
Bangladesh during 2007-2008.
In graph-4 shown all of these inputs and outputs of four nationalized
banks of Bangladesh against to its total assets.
Graph-4: Efficiency of different banks operated in Bangladesh during
200--2008
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Efficiency (Inputs) of Banks of Bangladesh
Bank
s
No. of Employees No. of Branches Int. Exp./T.A. % Op. EXP./T.A. %
Actual
Target
Potentialimprove
(%)
Actual Target
Potentialimprove
%
Actual
(%)
Target
(%)
Potentialimprove (%)
Actual
(%)
Target
(%)
Potentialimprove
(%)
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Sonal
i
B
a
n
k
26,085 26,085
0 1,183 1,183 0 2.61 2.61 0 1.30 1.30 0
Janat
a
Ba
n
k
13,593 16,235
19.43 850 850 0 3.48 3.48 0 1.73 1.73 0
Agra
ni
B
a
n
k
13,269 13,269 0 903 903 0 2.80 2.80 0 1.82 1.82 0
Rupal
i
B
a
n
k
14,500 14,500 0 875 875 0 1.86 1.86 0 1.61 1.61 0
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In the efficiency measurement of the nationalized banks of Bangladesh, in case of inputs the potential
improvement should be negative to become most efficient bank in Bangladesh. But most of the decision making
units are unchanged. Bank should develop their position in their respective fields.
In case of outputs potential improvement should be positive. Such as interest income on total assets, spread on
total assets, net income and gross profit on total assets. All of these four outputs have a further potential
improvement which is reflected in the above tables. But there may not any scope for further improvement for all
inputs and outputs. Table in the next page shows the potential improvement of the all outputs.
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Efficiency (Outputs) of Banks of Bangladesh
Bank
s
Int. Inc./T.A. Spread/T.A. N.P./T.A. % G.P./T.A. %
Actual
(%)
Target
(%)
Potentialimprove
(%)
Actual(%)
Target
(%)
Potentialimprove
%
Actual
(%)
Target
(%)
Potentialimprove (%)
Actual
(%)
Target
(%)
Potentialimprove
(%)
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Sonal
i
B
a
n
k
5.40 6.00 11.11 2.79 3.00 25.44 0.33 0.60 81.82 3.99 4.50 12.78
Janat
a
Ba
n
k
4.85 5.25 8.25 1.36 2.00 25.00 1.19 1.50 26.05 4.35 4.55 5.50
Agra
ni
B
a
n
k
5.10 5.50 7.85 2.30 2.50 8.70 1.41 1.55 9.92 3.38 3.85 13.09
Rupal
i
B
a
n
k
4.02 4.50 11.94 2.15 2.45 13.95 0.91 1.10 20.90 2.11 2.39 13.27
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Performance Measurement of Outputs (Int. Inc./T.A.)
Performance Measurement of Outputs (Int. Inc. /T.A.)
Performance Measurement of Outputs (Spread / T.A)
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Performance Measurement of Outputs (Net Income/ T.A)
Performance Measurement of Outputs (Gross Profit/ T.A)
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Conclusion
Since Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank plays a
significant role for the financial development of our country, as a result
these banks must have efficiency for operating their all activities. TheDEA Analysis is a very effective approach to measure the efficiency of
banks (DMUs), if the assumptions are realistic and model setting is
perfect. Here in this paper, we have analyzed the case on the basis of
four specific inputs and four specific outputs only. This study may be
extended further if we include other inputs and outputs. Outputs of four
nationalized banks of operating in Bangladesh during 2007-2008 are
mostly efficient. There are several limitations remained in this study.
Firstly, we do not have access to data on price and other environment
factors. In addition, the study does not have access to panel dataavailable, making it impossible to decompose the overall efficiency into
catching-up component and the shift of production frontier.
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