NON-PARAMETRIC APPROACH TO MODEL THE BRANCH-WISE EFFICIENCY OF ISLAMI BANK BANGLADESH LIMITED (IBBL): AN EMPIRICAL STUDY

Abstract

This study examines the branch-wise technical, pure technical, scale and  allocative efficiencies of Islami Bank Bangladesh Limited (IBBL) using  panel data for the year 2003 to2007. The technique of DataEnvelopment Analysis (DEA) has beenutilizedtocompute the efficiencies of branches.  The average allocative efficiency is 61-76%, whereas the average technical  efficiencyisabout51-65% during the studyperiod. Thismeans that the  dominant source of inefficiency is duetoboth technical inefficiency and  allocative inefficiency but technical inefficiency has gotmore contribution  to inefficiency than allocative inefficiency. These results are consistentwith the fact  that  the Islamic banks do notoperateinan overallregulatory supportive environment.Theyare noteven technicallysound enough in their operations. Average scale efficiencyisabout 53%, and average pure  technicalefficiencyisabout68%t,suggesting thatthe major source of the  total technical inefficiency for IBBL branches are not pure technical  inefficiency(inputrelated) butscale inefficiency(outputrelated). Study results indicate that there has been moderateincrease inproductivitygrowth over the years. Productivityincreases inIBBLbranches are mainly driven  bytechnologicalchange (opening up and penetrating inother markets) not technical efficiency change(efforts of inefficient bankstocatchupwiththe  efficient ones). The results show that larger branch size isassociated with  higher efficiency. These resultsindirectlysupportthe economies of scale  arguments in IBBL branches.  

JEL Classification:D61, G21, Z12  

Keywords:Bank Efficiency, Productivity, Islamic Banking, DEA  Approach, Bangladesh