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

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 to 2007. The technique of Data Envelopment Analysis (DEA) has been utilized to compute the efficiencies of branches. The average allocative efficiency is 61-76%, whereas the average technical efficiency is about 51-65% during the study period. This means that the dominant source of inefficiency is due to both technical inefficiency and allocative inefficiency but technical inefficiency has got more contribution to inefficiency than allocative inefficiency. These results are consistent with the fact that the Islamic banks do not operate in an overall regulatory supportive environment. They are not even technically sound enough in their operations. Average scale efficiency is about 53%, and average pure technical efficiency is about 68%t, suggesting that the major source of the total technical inefficiency for IBBL branches are not pure technical inefficiency (input related) but scale inefficiency (output related). Study results indicate that there has been moderate increase in productivity growth over the years. Productivity increases in IBBL branches are mainly driven by technological change (opening up and penetrating in other markets) not technical efficiency change (efforts of inefficient banks to catch up with the efficient ones). The results show that larger branch size is associated with higher efficiency. These results indirectly support the economies of scale arguments in IBBL branches.