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Relationship among cost of financial intermediation, risk, and efficiency: Empirical evidence from Bangladeshi commercial banks

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  • Anupam Das Gupta
  • Niluthpaul Sarker
  • Mohammad Rifat Rahman
  • David McMillan

Abstract

The global financial crisis and stiff market competition enhance risk exposures that raise debate on the cost of financial intermediation and the supremacy of banks’ efficiency. This study examines the concurrent effects of bank risk, efficiency and cost of financial intermediation of Bangladeshi commercial banks. The Two-Step System GMM (2GMM) estimators of unbalanced dynamic panel data of 32 commercial banks from 2000 to 2016 addresses key factors rigorously in the light of bank-level, industry-level, and macroeconomic-level phenomenon. Efficiency gains cost the spread of banks’ financial intermediation, and risk-taking negatively affects the return. Cost-efficient banks are taking more credit risk; however, more efficiency gains reduce banks’ risk substantially. Size (cost of intermediation) of banks positively (inversely) affect the risk-taking (efficiency) behaviour of banks. Market competition enhances the risk and efficiency and reduces banks’ interest spread. Finally, the Nonlinear effect of size and market competition is heterogeneous on risk, efficiency, and financial intermediation cost that follows a U-shape curve. This study explicitly addresses two issues: simultaneous effect of financial intermediation, bank risk, and efficiency and validated the nonlinear relationship considering size and market competition effect.

Suggested Citation

  • Anupam Das Gupta & Niluthpaul Sarker & Mohammad Rifat Rahman & David McMillan, 2021. "Relationship among cost of financial intermediation, risk, and efficiency: Empirical evidence from Bangladeshi commercial banks," Cogent Economics & Finance, Taylor & Francis Journals, vol. 9(1), pages 1967575-196, January.
    • Handle: RePEc:taf:oaefxx:v:9:y:2021:i:1:p:1967575
    DOI: 10.1080/23322039.2021.1967575
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    Cited by:

    1. Changjun Zheng & Md Mohiuddin Chowdhury & Anupam Das Gupta & Md Nazmul Islam, 2024. "Effects of competition and ownership on the simultaneous relationship between bank risk and capital: Evidence from an emerging economy of Bangladesh," PLOS ONE, Public Library of Science, vol. 19(12), pages 1-35, December.
    2. Liliana Liliana & Ariodillah Hidayat & Eka Meirawati & Xenaneira Shodrokova, 2026. "Do Exchange Rate Volatility, Inflation, and Stock Price Index Affect the Financial Institution Efficiency Index in G20 Emerging Markets?," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 22-43.
    3. Fakhrullah & Sher Khan & Xiao DingDing & Marian Suplata, 2025. "Global technology innovation: comparison of new broad-based index of financial development of Europe and Asia," Future Business Journal, Springer, vol. 11(1), pages 1-21, December.
    4. Changjun Zheng & Md Mohiuddin Chowdhury & Md Abdul Mannan Khan & Anupam Das Gupta, 2023. "Effects of ownership on the relationship between bank capital and financial performance: evidence from Bangladesh," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 12(9), pages 260-274, December.

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