PRESENTATION ON INTERNSHIP REPORT

Relative Efficiency of Selected Commercial Banks in Bangladesh: A

DEA Approach

Shama Sarwat (Rayana)Exam Roll Number: 080058

Registration No.: 260364th Year, 8th Semester

Batch Number: 17, BBA ProgramAcademic Session: 2007-08

SUBMITTED BY

INTERNSHIP PLACEMENT

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 world’s largest bank by revenues as of 2008

REPORT BACKGROUND

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.

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 importanceo Analysis of current efficiency level required with solution –

where to improve and to which extend to become fully efficient

RATIONALE

SIZE OF GLOBAL BANKING INDUSTRY

6,453

USA

88

India

SIZE OF GLOBAL BANKING INDUSTRY

58

Bangladesh

SIZE OF GLOBAL BANKING INDUSTRY

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

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

REPORT OBJECTIVES (CONT.)

SWOT• STRENGTHS• Global product• Strong global image• Personalized approaches• Expert local management• Citi’s global policy

• WEAKNESSES• Narrow operating span• Limited & low marketing • Short term presence

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

• THREATS• larger branch network of other

banks• higher singe borrower limit of

others• doesn’t offer retail banking • Radical moves of the law and

infrastructure• Slowdown of global economy

Operation Approach:

Input 1 (x1) = Total deposits in BDTInput 2 (x2) = Number of employeesInput 3 (x3) = Number of branchesInput 4 (x4) = Total Expenses (Interest + labor + other)Input 5 (x5) = Total Fixed Assets

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

DEFINING VARIABLES

Input-output mixImprovement Parameters

Intermediation Approach:

Input 1 (x1) = Interest ExpenseInput 2 (x2) = Commission, exchange and brokerageInput 3 (x3) = Labor expensesInput 4 (x4) = Operating expenses (net of Labor Expense)

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

DEFINING VARIABLES

Input-output mixImprovement Parameters

Research category:

o Secondary research: done on secondary data collected from published and unpublished database sources and internet

o Quantitative research

METHODOLOGY:RESEARCH DESIGN

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

Analysis Models:

o DEA Approach : Input Orientedo 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

METHODOLOGY:RESEARCH DESIGN

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

WHAT IS DEA APPROACH?

o Efficiency is measured by the ratio of output to inputoThe 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 othersoThe most efficient banks are rated to have an efficiency score of 1 while the less efficient banks have a score between 0 and 1

DEA APPROACH (cont.)

FINDINGS

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) Targets3) Slack

TOTAL 40 SHEETS

RESULT 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 4 802,519,497 192,487,379.00   19,295,322,778 4,647,484,581

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

Input-Oriented      Optimal Lambdas with Benchmark

                 

CRS Sum of

DMU Name 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 0.363 Southeast 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 0.049 Southeast Bank 0.682 Mutual Trust Bank

Prime Bank 1.00000 1.000 Constant 1.000 Prime Bank

Pubali Bank 0.87201 1.822 Decreasing 1.208 Eastern Bank 0.338 Shahjalal Bank 0.275 Mutual Trust 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.                

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

 

Efficient Input Target

# of Employees # of BranchesTotal Expenses(Interest + labor+ other)

 

Efficient Output Target

Investment with Gov. & othersDMU Name Total deposits Total Fixed Assets Loans and advances

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

   

Total Expenses(Interest + labor+ other)

 

Output Slacks

 

DMU Name Total deposits # of Employees # of Branches Total Fixed Assets Loans and advancesInvestment 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

o This is the productivity efficiency analysiso 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 Intermediation approach 2006-2010

o This is profitability efficiency

o Average efficiency scores of the sampled DMUs during 2006-2010 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 Operation Approach 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.

Summary of the two approaches2006-2010

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

CONCLUSION

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

LIMITATIONS

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