Determinants of Commercial Banks’ Efficiency in Bangladesh: Does Crisis Matter?

Banks play a crucial role in bringing stability and economic development through their expected contribution in proper financial resource mobilisation across the economy. Despite the great importance, there is little focus in recent literature which provided empirical evidence on the effect of global financial crisis and post-crisis on the banks of Bangladesh and other determinants of Bangladesh bank efficiency. Thus, this paper aims to examine the effect of global financial crisis and post-crisis, and other determinants of the efficiency of Bangladesh commercial banks. By employing the Data Envelopment Analysis (DEA) method, we computed the technical efficiency of individual banks operating in the Bangladesh banking sector during 2000 to 2013. The empirical findings indicate that the Bangladesh banking sector has exhibited the highest efficiency level during 2001, while efficiency seems to be at the lowest level during 2010. The study finds that crisis along with bank size, capital adequacy ratio, return on average equity and real interest rate have a significant effect on bank efficiency in Bangladesh. In order to keep the sound financial development of Bangladesh, banks operating in the Bangladesh banking sector have to consider all the potential technologies which could improve their profit efficiency levels, since the main motive of banks is to maximise shareholders’ value or wealth through profit maximisation.