A stochastic frontier model on measuring online bank deposits efficiency

Abstract

An attempt has been made to investigate the online bank specific deposits efficiency using stochastic frontier
technique and it intends to determine various factors affecting the efficiency level of banks for the period 2001
- 2007. We used a panel of 20 banks divided into four groups namely, NBs (National Banks), ISBs (Islamic
Banks), FBs (Foreign Banks), and PBs (Private Banks) in Bangladesh. In this study, a comparison was made
with the efficiency scores of banks group-wise, year-wise and individually. This study showed that the
estimated year-wise average online banks deposits efficiency was 0.738 while group-wise average deposits
efficiency was 0.777. At the bank group level, Nationalized Commercial Banks (NBs) and Islamic Banks (ISBS)
were more efficient by 90.9 and 86.8% respectively, followed by Private Banks (PBs) which had 63.4% and
Foreign Banks (FBs), 62.7%. We observed that the foreign banks were less efficient in producing deposits.
However, the overall deposits efficiency of all bank groups steadily increased over time except in 2007. The
most efficient bank was found to be Islami Bank Ltd. and the most inefficient bank was Pubali Bank with
efficiency scores of 0.96 and 0.52, respectively.