Assessing the Cost Efficiency of Commercial Banks in Nepal: An Empirical Analysis


  • Dinesh Gajurel University of New Brunswick



Banks, cost efficiency, data envelopment analysis, factor productivity, Nepal


This paper examines the cost efficiency and its determinants for Nepalese commercial banks by using semi-parametric methodology. We first estimate the efficiency and growth of productivity using Data Envelopment Analysis and then identify firm-specific attributes that potentially explain cost efficiencies. The first-stage results indicate a considerable level of cost inefficiency, which is largely caused by technical inefficiency. Additionally, there exists a low level of external (particularly regulatory) influence on the input mix, as indicated by a very low level of allocative inefficiency. The growth in productivity is low and even negative, mostly resulting from a lack of technological progress. The second-stage results indicate that state-owned banks are less cost-efficient than private banks (domestic and foreign), and size has a consistently inverse impact on cost efficiency. Banks with higher financial capital, larger loan ratios, and higher profits tend to be more cost efficient; however, banks with higher credit risk tend to be less cost efficient. Our findings have implications for policymakers, regulators, and bank managers as a better understanding of the level and sources of bank efficiency helps reduce inefficiencies, formulate regulations to enhance the overall efficiency of the banking system, and develop policies to promote competition and financial stability.

Author Biography

Dinesh Gajurel, University of New Brunswick

Dinesh Gajurel (PhD, University of Tasmania) is Associate Professor at Faculty of Management, University of New Brunswick, Fredericton, New Brunswick, Canada. He is also a Research Associate at Centre for Applied Macroeconomics Analysis, Australian National University, Canberra, Australia.  His research interest includes asset pricing, banking, empirical finance, financial crisis and contagion, and financial markets. His research has been published in the Journal of Banking & Finance, Applied Economics, Economic Record, and Journal of Risk and Financial Management. He can be reached at


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How to Cite

Gajurel, D. (2023). Assessing the Cost Efficiency of Commercial Banks in Nepal: An Empirical Analysis. Journal of Comparative International Management, 26(1), 65–97.



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