Bank efficiency in Bangladesh revisited: a slack-based network DEA approach

Abstract

Purpose: Data envelopment analysis (DEA) calculates the efficiency of a business unit if all the inputs are creating outputs within a “black box.” Under traditional DEA, the detailed process of that business unit is ignored. However, a network DEA can explain the black box structure and provide efficiency results for sub-sections within any business process. This study aims to propose a network DEA model that explains a bank's total operation.Design/methodology/approach: Earlier studies have focused only on bank efficiency ignoring this breakdown. This study departs from them by using a slack-based two-stage network DEA under a novel banking business perspective.Findings: The results reveal that network DEA provides better benchmarking insights than the traditional DEA. As such, better benchmarking can guide both the banking industry managers and policy makers in Bangladesh.Originality/value: The major contribution of this study includes dividing a bank's total operation efficiency into two sub-operations: “core operations – collecting deposits and giving loans” and “additional operations – fees, commissions and other services.”