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Relative Efficiency of Selected

Commercial Banks in Bangladesh: A DEA


Approach

Shama Sarwat (Rayana)


Exam Roll Number: 080058
Registration No.: 26036
4th Year, 8th Semester
Batch Number: 17, BBA Program
Academic Session: 2007-08

ranked 8th in Fortune 500 companies


1st among bank holding companies
11th in the Business Weeks 2007 top global brands
has the world's largest financial services network
spanning 140 countries with approximately 12,000 offices &
300,000 staffs
holds over 200 million customer accounts across 6 continents
worlds largest bank by revenues as of 2008

PROBLEM STATEMENT

Studies on commercial banks in Bangladesh , using


regression and ratio analysis are available, showing ROI,
ROE, EPS, DSCR etc. But, these studies do not tell us where
to improve by what amounts. Further analysis is needed to
provide insight to activity stages - through operation to
intermediation till getting the final output.

RATIONALE

o Banks are the intermediaries that borrow from supply side


and lend to the demand side
o Banks are thus in the centre of economy
o High efficiency is of a great importance
o Analysis of current efficiency level required with solution
where to improve and to which extend to become fully
efficient

USA

6,453

India

88

Bangladesh

58

REPORT OBJECTIVES

Primary Objective:

To measure productivity & profitability efficiency of selected


private commercial banks, and to make a comparison
between the performance efficiency of Citibank, N.A. and the
other 14 sampled commercial banks.
METHODOLOGY: RESEARCH DESIGN

REPORT OBJECTIVES (CONT.)

Secondary Objectives:
To present a brief overview of Citigroup, Citibank N.A. and its
operations in Bangladesh along with SWOT analysis. SWOT
To compare the productivity & profitability efficiency of the
sampled banks
To identify the productivity efficiency factors for improvement to
use it as a managerial tool. DEFINING VARIABLES

SWOT

STRENGTHS
Global product
Strong global image
Personalized approaches
Expert local management
Citis global policy

OPPORTUNITIES
Direct Custody and Clearing (DCC)
Most profitable customers
retaining policy
Product Innovation
M&A expertise

WEAKNESSES
Narrow operating span
Limited & low marketing
Short term presence

THREATS
larger branch network of other
banks
higher singe borrower limit of
others
doesnt offer retail banking
Radical moves of the law and
infrastructure
Slowdown of global economy

DEFINING VARIABLES

Input-output mix

Improvement
Parameters

Operation Approach:
Input 1 (x1)
Input 2 (x2)
Input 3 (x3)
Input 4 (x4)
Input 5 (x5)

= Total deposits in BDT


= Number of employees
= Number of branches
= Total Expenses (Interest + labor + other)
= Total Fixed Assets

Output 1(y1)
= Total loans in BDT
Output 2 (y2)
= Net investments in BDT
REPORT OBJECTIVES (CONT.)

DEFINING VARIABLES

Input-output mix

Improvement
Parameters

Intermediation Approach:
Input 1 (x1)
Input 2 (x2)
Input 3 (x3)
Input 4 (x4)

= Interest Expense
= Commission, exchange and brokerage
= Labor expenses
= Operating expenses (net of Labor Expense)

Output 1 (y1)
= Interest income
Output 2 (y2)
= Investment income
Output 3 (y3)
= Other operating income
REPORT OBJECTIVES (CONT.)

METHODOLOGY:
RESEARCH DESIGN
Research category:

o Secondary research: done on secondary data collected


from published and unpublished database sources and
internet
o Quantitative research
Sampling:

o Stratified purposeful sampling - where each of the strata


would constitute a fairly homogeneous sample. 14 PCBs &
Citibank, N.A. as 1 FCB, operating in Bangladesh

METHODOLOGY:
RESEARCH DESIGN
Analysis Models:
o DEA Approach : Input Oriented
o CCR Model (Charnes, Cooper and Rhodes , 1978)
Production process of the DMUs has been divided into two stages:
Absorbing resources and spending resources. That means
productivity efficiency and profitability efficiency. The first stage is
called Intermediation Approach and the second stage is called
Operation Approach.

o Farrel (2003) measures. REPORT OBJECTIVES

WHAT IS DEA APPROACH?

o A linear programming application used to determine the


relative efficiency for a set of homogenous Decision Making
Units (DMU)

o Very useful technique where the presence of multiple inputs


and outputs makes comparison difficult ; such as banks

DEA APPROACH (cont.)


o Efficiency is measured by the ratio of output to input
oThe performance of a bank is conceptualized as the extent to
which the bank is able to utilize its resources to generate
business transactions and it is measured by an efficiency ratio.
oDEA identifies the most efficient banks in a population and
provides a measure of inefficiency for all others
oThe most efficient banks are rated to have an efficiency score
of 1 while the less efficient banks have a score between 0 and 1

RESULT SHEETS

Through DEA solver, for each of the years from 2006-2010,


3 result sheets were produced against the 1 data input
sheet per approach
1) Efficiency
2) Targets
3) Slack
TOTAL 40 SHEETS

Table: DEA Solver input data via Intermediation approach (2010)

DMU Name

Total deposits

# of Employees # of Branches

Total Expenses(Interest +
labor+ other)

Total Fixed Assets

Loans and advances

Investment with Gov. &


others

Bank Asia

83,601,263,368

1,237

49

2,441,545,139

1,837,283,978.00

79,504,232,613

12,075,700,932

Dhaka Bank

67,742,518,136

1,109

56

1,714,736,557

977,385,392.00

63,591,387,406

8,443,201,485

City Bank

67,419,801,730

2,685

88

3,200,831,687

3,206,205,668.00

60,326,545,084

12,473,962,726

DBBL

83,244,772,836

2,763

96

2,960,624,703

2,934,359,758.00

67,657,062,364

11,001,605,828

Eastern Bank

56,425,228,517

973

49

2,073,766,734

3,614,398,915.00

58,607,085,693

9,827,197,073

EXIM Bank

94,949,400,069

1,686

59

1,810,108,689

463,743,339.00

93,296,648,855

6,012,855,886

Merchantile Bank

73,739,392,053

1,605

65

1,928,685,597

1,647,581,148.00

66,377,697,326

10,937,201,791

One Bank

50,873,707,749

1,247

50

1,447,357,626

619,951,616.00

42,190,397,165

7,490,869,936

Prime Bank

124,799,314,775

2,139

94

3,769,667,412

1,743,653,375.00

118,837,290,007

22,198,536,395

Pubali Bank

98,850,499,250

5,534

399

3,769,667,412

3,330,313,913.00

89,106,206,559

16,516,388,559

Shahjalal Bank

62,964,948,065

1,671

63

1,322,254,120

1,472,502,085.00

61,440,075,905

2,228,851,599

Southeast Bank

107,253,190,318

1,373

76

1,737,739,216

4,463,638,993.00

93,981,202,323

18,869,071,237

Trust Bank

50,413,290,971

1,376

52

1,365,390,204

431,006,157.00

39,799,923,991

8,559,939,769

Mutual Trust Bank

45,846,309,207

1,050

67

1,351,934,730

722,053,009.00

37,730,458,690

9,098,954,386

Citibank, N.A.

23,387,196,816

195

802,519,497

192,487,379.00

19,295,322,778

4,647,484,581

Table: CRS efficiency scores and Optimal lambdas with benchmark via Intermediation approach (2007)

Input-Oriented

DMU Name

Optimal Lambdas
with Benchmark

CRS

Sum of

Efficiency

lambdas

RTS

Bank Asia

1.00000

1.000

Constant

1.000

Bank Asia

Dhaka Bank

1.00000

1.000

Constant

1.000

Dhaka Bank

City Bank

1.00000

1.000

Constant

1.000

City Bank

DBBL

0.77664

0.566

Increasing

0.203

Merchantile Bank

Eastern Bank

1.00000

1.000

Constant

1.000

Eastern Bank

EXIM Bank

1.00000

1.000

Constant

1.000

EXIM Bank

Merchantile Bank

1.00000

1.000

Constant

1.000

Merchantile Bank

One Bank

0.89051

0.771

Increasing

0.041

Merchantile Bank

Prime Bank

1.00000

1.000

Constant

1.000

Prime Bank

Pubali Bank

0.87201

1.822

Decreasing

1.208

Eastern Bank

Shahjalal Bank

1.00000

1.000

Constant

1.000

Shahjalal Bank

Southeast Bank

1.00000

1.000

Constant

1.000

Southeast Bank

Trust Bank

1.00000

1.000

Constant

1.000

Trust Bank

Mutual Trust Bank

1.00000

1.000

Constant

1.000

Mutual Trust Bank

Citibank, N.A.

1.00000

1.000

Constant

1.000

Citibank, N.A.

0.363

Southeast Bank

0.049

Southeast Bank

0.682

Mutual Trust Bank

0.338

Shahjalal Bank

0.275

Mutual Trust Bank

Table: Efficient input target and output target via Intermediation approach (2007)
Efficient Output Target
Efficient Input Target

DMU Name

Total deposits

# of Employees

# of Branches

Total Expenses(Interest +
labor+ other)

Total Fixed Assets

Loans and advances

Investment with Gov. &


others

Bank Asia

30004088739.00000

639.00000

29.00000

1316315575.98913

498428682.00000

28456944137.00000

4203135875.00000

Dhaka Bank

48730676321.82380

842.00000

41.00000

1159004257.00000

291259210.00000

39971903240.00000

5971748749.00000

City Bank

40539634035.00000

1990.99998

83.00000

1316315570.41092

1390732179.94957

26788466306.80990

7550606492.00000

DBBL

32704232138.28920

584.13632

25.03207

579338774.59499

740950482.80182

28369578068.10010

5909323040.00000

Eastern Bank

29878501670.00000

690.00000

28.00000

951589162.00000

871267742.99915

30895706294.00000

3456990107.00000

EXIM Bank

41546568591.80200

1104.00000

35.00000

912218527.99160

200702928.00000

40195239222.00000

2457716314.00000

Merchantile Bank

38139901767.00000

945.00000

41.00000

1016510458.98400

593203096.00000

31877860104.14200

7099966878.00000

One Bank

21803350013.01550

485.30847

24.37119

380910490.19792

313424932.98628

19709302397.02650

3587478621.00000

Prime Bank

70544071295.00000

1400.00000

61.00000

1574232708.99945

662350336.00000

57781997118.23800

12698020628.00000

Pubali Bank

50573951457.76940

1180.58613

50.88673

1372750637.45745

1178750255.19468

50549167102.00000

5556578405.00000

Shahjalal Bank

22618187303.00000

555.00000

26.00000

313816132.00000

127055566.99791

20616605335.00000

858994699.00863

Southeast Bank

68714672575.00000

1080.00000

46.00000

1026854672.00000

1708110172.00000

60281260389.00000

12299606871.00000

Trust Bank

27101585100.71990

842.00000

31.00000

474951358.00000

194224790.00000

18682164654.04730

3785450925.00000

Mutual Trust Bank

24776924968.00000

578.00000

30.00000

424484555.00000

301871320.99912

22683227657.00000

3956528943.00000

Citibank, N.A.

24655856230.79660

173.00000

4.00000

520681707.99935

144102659.99957

16999528039.00000

2772355156.00000

Table: Input slacks and output slacks via Intermediation approach (2007)
Input Slacks

Output Slacks

Total deposits

# of Employees

# of Branches

Total Expenses(Interest +
labor+ other)

Total Fixed Assets

Loans and advances

Investment with Gov. &


others

Bank Asia

0.00000

0.00000

0.00000

0.01087

0.00000

0.00000

0.00000

Dhaka Bank

0.17620

0.00000

0.00000

0.00000

0.00000

0.00000

0.00000

City Bank

0.00000

0.00002

0.00000

5.58908

18.05043

168.80992

0.00000

DBBL

0.00000

28.62904

13.02307

470517486.23207

150080237.60495

0.10011

0.00000

Eastern Bank

0.00000

0.00000

0.00000

0.00000

0.00085

0.00000

0.00000

EXIM Bank

0.19801

0.00000

0.00000

0.00840

0.00000

0.00000

0.00000

Merchantile Bank

0.00000

0.00000

0.00000

0.01600

0.00000

0.14200

0.00000

One Bank

0.00000

210.17879

2.34407

152005060.53805

0.00000

0.02652

0.00000

Prime Bank

0.00000

0.00000

0.00000

0.00055

0.00000

0.23804

0.00000

Pubali Bank

0.00000

3414.91987

263.90979

0.00000

13490527.65916

0.00000

0.00000

Shahjalal Bank

0.00000

0.00000

0.00000

0.00000

0.00209

0.00000

0.00863

Southeast Bank

0.00000

0.00000

0.00000

0.00000

0.00000

0.00000

0.00000

Trust Bank

0.28009

0.00000

0.00000

0.00000

0.00000

0.04731

0.00000

Mutual Trust Bank

0.00000

0.00000

0.00000

0.00000

0.00088

0.00000

0.00000

Citibank, N.A.

0.20337

0.00000

0.00000

0.00065

0.00043

0.00000

0.00000

DMU Name

Summary of Intermediation approach


2006-2010
o This is the productivity efficiency analysis
o the average efficiency scores during 2006-2010 range from
0.95096 to 0.96928.
o Haphazardly, in 2007 it increased by 1.6% from 2006,
decreased in 2008 by 0.5% than 2007, and again decreased by
1.3% than 2008. Finally, it increased by 1.8% in 2010 than
2009
o 4 DMUs were consistently efficient - Eastern Bank Ltd., EXIM
Bank, Southeast Bank, Citibank, N.A.

Summary of Operation Approach


2006-2010
o This is profitability efficiency
o Average efficiency scores of the sampled DMUs during 20062010 ranges from 0.94772 to 0.98916; stable for the latest
three years (2010, 2009, 2008)
o 4 DMUs found to be constantly maintaining efficiency score
1: Eastern Bank Ltd., Pubali Bank, Southeast Bank, Citibank,
N.A.

Summary of the two approaches


2006-2010
o Only 3 DMUs have been proved to be efficient constantly
every year - Eastern Bank, Southeast Bank and Citibank, N.A.
o More efficient in operation approach than in intermediation
approach
o That means, during 2006-2010 the DMUs have been capable
of efficiently utilizing labour, capital etc. to generate
revenues; whereas these were incapable of efficiently
utilizing intermediates.

CONCLUSION

o In comparison to all the sampled banks, Citibank, N.A. was


found to be constantly efficient
o This report can serve as a very effective and descriptive tool
for the managers for finding improvement opportunities in
selected activities

LIMITATIONS

Only 14 PCBs & 1`FCB have been sampled due to


unavailability of information and avoidance of complexity in
DEA
Qualitative data have been ignored
Augmented sample would have provided more appropriate
results