Cost and Profit Efficiency of Online Banks: Do National Commercial Banks Perform better than Private Banks?

Baten Ma (), Kasim Mm and Rahman M
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Baten Ma: Department of Decision Science, School of Quantitative Sciences, Universiti Utara Malaysia, Malaysia
Kasim Mm: Department of Decision Science, School of Quantitative Sciences, Universiti Utara Malaysia, Malaysia
Rahman M: Department of Statistics, Shah Jalal University of Science and Technolgy, Bangladesh

Journal of Internet Banking and Commerce, 2015, vol. 20, issue 03, 01-19

Abstract: This study employs the parametric approach, in particular the Stochastic Frontier Approach, to examine the cost and profit efficiency of National Commercial Banks and Private Banks in Bangladesh using stochastic frontier model. The cost inefficiency and profit efficiency are observed slightly higher for private banks than national commercial banks. The coefficient of advance (0.334) is highly significant at 1% level and the coefficient of off-balance sheet items (0.339) is significant at 5% level. Both results are positive influence to the banks for cost model. The coefficients of Advance, Other earning assets, Off-balance sheet items, Price of fixed assets and Price of labour are recorded highly significant in profit model. The average cost inefficiency and profit efficiency are observed 16.3% and 91% respectively. The lowest cost inefficiency is 5.3% for United Commercial Bank Limited while the highest cost inefficiency is 44.7% for Janata Bank. The lowest profit efficiency is 76.9% for Janata Bank while the highest profit efficiency is 94.9% for Eastern Bank Limited.

Keywords: Cost efficiency; Profit efficiency; Translog stochastic cost and profit model; National Commercial Banks and Private Banks; Bangladesh (search for similar items in EconPapers)
JEL-codes: A11 (search for similar items in EconPapers)
Date: 2015
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