Benchmarking the banking sector of Bangladesh: a comprehensive analysis of performance and efficiency

Abstract

PurposeThe economic development of Bangladesh is heavily reliant on the banking industry, yet it faces numerous hurdles, including liquidity issues, capital shortages, non-performing loans, inefficiencies and so on. Therefore, this study investigated the performance and efficiency of scheduled banks (state-owned, private commercial, foreign commercial and specialized banks) operating in Bangladesh.Design/methodology/approachThe research was conducted using secondary data from annual reports of banks. The CAMELS rating system and Data Envelopment Analysis (DEA) methods were employed to measure the performance and efficiency of banks, respectively.FindingsIn the overall bank rankings, results revealed that foreign commercial Standard Chartered Bank and state-owned Sonali Bank Limited came in first and last position, respectively. Among the four categories of banks, foreign commercial banks were the best performer, while state-owned banks were the worst. Only two banks, i.e. Citibank NA and HSBC Bank, were scale efficient while the remaining banks were inefficient. In terms of performance and efficiency, state-owned and specialized banks were deemed wanting.Practical implicationsThis study proposes recommendations to the policymakers that could lead to more effective tactics for improving the banking industry's performance and efficiency.Originality/valueAs far as the authors are concerned, this study presents empirical evidence on the performance and efficiency of different types of banks and explores comparisons among them, which has never been done to this extent in the country before.