Efficiency and Returns to Scale in the Bangladesh Banking Sector: Empirical Evidence from the Slack-Based DEA Method

The study provides new empirical evidence on the level ofprofit efficiency and returns to scale of the Bangladesh bankingsector. We employ the Slack-Based Data EnvelopmentAnalysis (SBM-DEA) method to assess the level of profitefficiency of individual banks over the years 2004 to 2011. The empirical findings indicate that the Bangladesh bankingsector has exhibited the highest and lowest level of profitefficiency during years 2004 and 2011 respectively. We findthat only eight banks have been profit efficient throughout theperiod under study. The empirical findings seem to suggestthat most of the Bangladesh banks have been experiencingeconomies of scale due to being at less than the optimumsize, or diseconomies of scale due to being at more than theoptimum size. Thus, decreasing or increasing the scale ofproduction could result in cost savings or efficiencies.