Financial Reform, Ownership and Performance in Banking Industry: The Case of Bangladesh

Abstract

Bangladesh entered into the era of financial reform during the early 1980s. Most of the reforms initiated by thegovernment have concentrated predominantly on the banking sector. Consequently, many changes relating toownership, market concentration, regulatory measures and policies have taken place primarily to enhancing bankperformance. In this regard, this study is undertaken to investigate the performance of commercial banks afterthe implementation of significant financial reform. Data Envelopment Analysis based frontier measures incomeand cost efficiency and traditional non-frontier measures non-performing loans and return on assets have beenused for assessing bank performance. The findings indicate that income and cost efficiency of sample banks haveincreased by 37.84 percent and 15.28 percent respectively in 2008 compared to 2001. Similarly, non-performingloans and return on assets also report improvement in bank performance. The results generated by regressionmodels indicate that foreign ownership has a statistically significant positive impact on bank performance. Onthe other hand, private ownership has favorable impact on income efficiency, return on assets, andnon-performing loans, whereas negative impact on cost efficiency.

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