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The role of human resource

management practices in bank
performance
ab

ac

Abdul Kadar Muhammad Masum , Md. Abul Kalam Azad

See Beh

& Loo-

Department of Business Administration, International Islamic

University Chittagong, Chittagong, Bangladesh
b

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Department of Administrative Studies & Politics, Faculty of

Economics and Administration, University of Malaya, Kuala
Lumpur, Malaysia
c

Department of Applied Statistics, Faculty of Economics and

Administration, University of Malaya, Kuala Lumpur, Malaysia
Published online: 21 Jan 2015.

To cite this article: Abdul Kadar Muhammad Masum, Md. Abul Kalam Azad & Loo-See Beh (2015):
The role of human resource management practices in bank performance, Total Quality Management
& Business Excellence, DOI: 10.1080/14783363.2014.1002762
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Total Quality Management, 2015

http://dx.doi.org/10.1080/14783363.2014.1002762

The role of human resource management practices in bank

performance

Abdul Kadar Muhammad Masuma,b , Md. Abul Kalam Azada,c and Loo-See Behb
a

Downloaded by [RMIT University] at 23:31 13 August 2015

Department of Business Administration, International Islamic University Chittagong,

Chittagong, Bangladesh; bDepartment of Administrative Studies & Politics, Faculty of
Economics and Administration, University of Malaya, Kuala Lumpur, Malaysia; cDepartment of
Applied Statistics, Faculty of Economics and Administration, University of Malaya,
Kuala Lumpur, Malaysia
This paper examines bank performance using a data envelopment analysis that includes
human resource management (HRM) practices as a quality component. The proposed
methodology, which investigates the direct impact of HRM practices on traditional
bank performance measurement, is applied for the first time to the banking sector.
The performance scores are then decomposed into four efficiency scores using the
Malmquist index. For empirical results, panel data of 48 banks are taken from
Bangladesh over the period of 20042013. The results state that foreign banks are
still in the queue to achieve the scale efficiency comparable to that of local banks.
However, considering HRM practices as quality indicator, foreign banks progressed
by 2.6% annually, whereas local banks regressed with a yearly value of 17.1% over
the study period. Thus, the results show that, while local banks possess an
acceptable level of performance in terms of their operations, their HRM practices
must be improved in order to deal with both modernisation of banks and
competition. The results are robust to the special assumptions of variables, national
banking convergence, and statistical test. Limitations and policy implications are
addressed.
Keywords: human resource management practices; bank; DEA; Malmquist index

1. Introduction
Like in other countries, the bank is the key player in the economic growth of Bangladesh.
In the banking sector, human resource management (HRM) practice is one of the most
influential factors for profitable and proficient banking operations, creation of new
banking products, and provision of better services to clients (Haines & St-Onge, 2011;
Vemic-urkovic, Jotic, & Maric, 2013). Through strategic HRM practices, employees
achieve a specific set of competencies that differentiates banks, and leads to the achievement of competitive advantages in the banking industry (Quresh, Akbar, Khan, Sheikh, &
Hijazi, 2010). In Bangladesh, the banking services do not differ much from each other.
Banks therefore need to create skilled and knowledgeable employees to satisfy their existing clients and to attract new clients, which results in profitable banking (Nguyen, Islam, &
Ali, 2011). The impact of HRM practices on bank performance is too complex to be
measured. To rationalise the necessary investments on human resource department, it is
the contribution of HRM practice to the organisational performance of banks must be
examined. In this study, the authors scrutinised the impact of HRM practices on the

Corresponding author. Email: akmmasum@yahoo.com

# 2015 Taylor & Francis

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A.K.M. Masum et al.

performance of the banks of Bangladesh by adopting appropriate measures from both

economics and HRM theory to fill this gap.
In comparison to other developing countries, the banking industry of Bangladesh is
relatively large for the size of its economy (Nguyen et al., 2011). In Bangladesh, the
total size of the non-bank financial industry is only 3.22% of GDP, while the total size
of the banking industry is 26.54% of GDP. Presently, 8794 branches of 56 schedule
banks and 4 nonscheduled banks operate in this country. In the year 2014 (September),
the population per branch is 18,098 (For more details see Bank website at http://www.
bb.org.bd/ the Bangladesh). To satisfy this increasing population, skilled employees are
required. Human resource is one of the key business assets in banks. However, measuring
the contribution of its economic value is difficult because of its indirect nature of value
addition to the financial performance of banks. Investment in HRM has a potential
value, but not a market value. The market value is attained only by incorporating employees competences in banking services. This value is measured through the quality of
banking services. Nowadays, the importance of HRM practices is positively perceived
by organisations. Nevertheless, investments in HRM practices are rarely measured. All
types of investments in physical capital are closely tracked and analysed by decisionmakers, while the details of investment information in HRM are rarely found in accounting
reports (Vemic-urkovic et al., 2013). The prime objective of this study is promoting the
quality of HRM practices, for its strategic value to the survival, growth, and development
of the bank, by demonstrating and analysing the complex relationships and correlation
between HRM practices and banks performance.
In banking studies, efforts have been mostly made towards analysing quantitative
aspects (performance) and less towards quality aspects. To explore the linkage
between management quality aspect and bank performance, we adopt a non-parametric
approach (data envelopment analysis, DEA) by De Nicola, Gitto, and Mancuso (2013).
Thus, the outcome of this research has enriched the issue of the quality aspects which
need to be incorporated in the bank performance analysis. The paper is organised as
follows: the next section offers a concise review of the literature concerning key
factors of HRM practices to achieve the effectiveness of organisational performance.
Section 3 includes the data set and variables employed in the analysis. Section 4
covers the methodology, which includes the proposed HRM component in the Malmquist total factor productivity decomposition. The results of the study and the robustness
test of results are presented in Sections 5 and 6, respectively. Section 7 includes limitations and future research directions. The final section includes the conclusion with
managerial implications.
2.

Literature review

Having reviewed the literature regarding the relation between organisational performance
and HRM practices, studies can be categorised into three large groups. Firstly, the research
on the impact of certain HRM practices on organisational performance, for example:
recruitment and selection (Katou & Budhwar, 2007; Lopez, Peon, & Ordas, 2005), training
and development (Dumas & Hanchane, 2010; Osman-Gani & Jacobs, 2005; Quresh et al.,
2010), tracking work effectiveness (Borman, 1991), compensation and rewarding
(Boselie, Dietz, & Boon, 2005; Rodriguez & Ventura, 2003; Simpson, Clegg, &
Freeder, 2013; Stone & Dulebohn, 2013), employee relations (McAuliffe et al., 2013),
and creating suitable organisational culture and environment (Song & Kolb, 2013). Secondly, the research on the impact of HRM practices on organisational performance

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Total Quality Management

(AL-Zahrani & Almazari, 2014; Apospori, Nikandrou, Brewster, & Papalexandris, 2008;
Guest, 1997; Koh & Hia, 1997; Quresh et al., 2010). Thirdly, the research on some indicators, related to employees and HRM, which are linked to the effectiveness of organisations, such as capabilities of human resource managers (Huselid, Jackson, & Schuler,
1997), organisational units for HRM (Ferris, Russ, Albanese, & Martocchio, 1990),
HRM quality programme schemes (Monks, Buckley, & Sinnott, 1997), job security
(Delery & Doty, 1996; Yousef, 1998), job satisfaction, and loyalty to an organisation
(Tomazevic, Seljak, & Aristovnik, 2013). Our study concentrated on four HRM practices
recruitment and selection, training, compensation (salaries and benefits), and employee
relations proposed by Dessler and Varkkey (2011) assuming that they have a significant
impact on organisational performance.
It is found that recruitment and selection is one of the essential factors in human
resource practices to include required employees within the organisation (Lopez et al.,
2005). Again, some researchers suggested that human resource practices positively influence organisational performance via recruitment and selection, participation, motivation,
training, and compensation (Katou & Budhwar, 2007; Stone & Dulebohn, 2013).
Emphatically, training and development improves employee performance and enhances
employees competence to achieve organisational goals (Quresh et al., 2010). Compensation is another factor in HRM practices that has a positive influence on organisational
performance (Boselie et al., 2005; Rodriguez & Ventura, 2003; Simpson et al., 2013;
Stone & Dulebohn, 2013). Moreover, compensation policies create inspiration among
current employees to be a competent employee. As a result, employee satisfaction is
increased and the turnover rate is reduced (Huselid, 1995; Rodriguez & Ventura,
2003; Stone & Dulebohn, 2013). Employee relation is perceived as another important
factor to measure human resource practices (Guest, Conway, & Dewe, 2004). In
addition, numerous researchers examined the effects of HRM practices using productivity, employee turnover, financial performance, and employee relations (Ahmad
& Schroeder, 2003; Delery & Doty, 1996; Huselid, 1995). In this study, the authors
examined the impact of some selected HRM practices (recruitment and selection, training and development, compensation, and employee relations) on the banks
performance.
Due to increasing competition in the local and global banking markets, the quality of
banking services is the most efficient means to win and retain clients. The quality of
services primarily depends on employee competences within the banks. Strategic
HRM planning and proper HRM practices make employees adequately competent to
satisfy a client, which leads to the achievement of the organisational goals. Delery
and Doty (1996) found a significant association between HRM practice and accounting
profits among banks. The research conducted by Chompukum (2011) on the four largest
banks in Thailand found that bank performance depends on financial motivation, training, monitoring, employee relations, and effective performance evaluation. The author
also stated that the supervisor needs to make employees see plainly how their effort
can prompt rewards. In the same way, AL-Zahrani and Almazari (2014) revealed,
from a study of Saudi banks, that there is a positive relationship between financial performance and effective HRM practices. They found a positive correlation between bank
financial performance and some HRM practices such as HRM planning, job description,
compensation system, and performance appraisal. Hence, the previous research explicitly indicates a positive impact of HRM practices on bank performance (Hussain &
Shahzad, 2014; Koh & Hia, 1997; Quresh et al., 2010; Vemic-urkovic et al., 2013;
Zorlu, 2010).

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A.K.M. Masum et al.

Though a significant number of DEA publications have analysed banks performance

worldwide (Liu, Lu, Lu, & Lin, 2013; Paradi & Zhu, 2013), only a few studies have dealt
with the relationship between the level of HRM practices and bank performance. Indeed,
banks operate their business in a complex environment. Considering the long-term effect
of HRM practices on organisational performance, this paper uncovered this gap of great
interest, especially in the banking industry. Previous literature shows that many researchers used parametric models for analysing performance (Cook, Seiford, & Zhu, 2013; Jeon,
Kim, & Lee, 2011; Kao, 2014). Among the major problems in parametric models, the
authors identified presumptions for model fitting (Brown & Gardener, 2004; Otsuki,
2013). Avoiding such a major issue, a nonparametric model (i.e. DEA) can offer better
performance estimation without any presumptions. This model even uses variables
(input/output) as in an invariant form. Most importantly, having a panel data, DEA can
estimate the productivity of business units in technical form (Aristovnik & Obadic,
2014). In this paper, we incorporated the quality aspect of HRM practices in calculating
DEA proposed by De Nicola et al. (2013). In addition, we used HRM practices as an indicator of achieving productivity among the banks. Top managers can revise their insight
with the outcomes, especially in the banking industry. Moreover, the above review
explains the existence of a research gap in incorporating HRM practices in performance
measurement and in particular, in the banking industry that requires special attention.

3.

Data and variables

We used four input variables, namely X1: number of branches, X2: number of employees,
X3: total deposits (million), and X4: total earning assets (million) and two output variables
are Y1: total loans (million) and Y2: net income (million). Since 48 banks are used in this
study as the sample decision making units (DMUs), the disposability covers the variables
(inputs/outputs). Moreover, we achieved an overall quality indicator (QI) of HRM practices from the four selected QIs, namely annual human resource recruitment (HRRec),
human resource training and development budget (HRTrD), compensation budget for
human resource (HRCom), and employee relations budget (HREr). The following
summary statistics briefly describes the used data and variables in this study (Table 1).

Table 1.

Summary statistics of data, 20042013.

Variables
Input (Xi)
X1: Number of branches
X2: Number of employees
X3: Total deposits (million)
X4: Total earning assets (million)
Output (Yi)
Y1: Total loan (million)
Y2: Net income (million)
HRM QIs
HRRec (annual)
HRTrD (million)
HRCom (million)
HREr (million)
Source: Bank annual report (20042013).

Min

Max

Mean

Variation Coef.

37
2986
986
1231

816
28,096
175,123
154,231

99
7243
5352
4764

12.613
9.623
835.234
35.752

985
40.5

12,041
990.8

2364
113.5

40.49
1.178

43.25
14.8
67
18

210
48
213
54.1

59
18.23
82.51
16.86

0.091
0.719
1.621
0.532

Total Quality Management

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4. Methodology
In this section, three issues are concentrated on; the DEA Malmquist index (MI), which
includes HRM practices as a quality component, computation technology, and the
measures of HRM practices as quality obtained from the stated data set.

4.1. Malmquist index and its quality component

Let the technology be defined as the combination of inputs (xt [ RN+ ), outputs
j
t
(yt [ RM
+ ), and the proposed HRM practices(hrm [ R+ ). So, for a specific period(t),
the technology set (St ) is defined as {(yt , xt , Hrmt ) : xt produces yt and Hrmt }. Since
the QI (Hrmt ) is an output item, the output vector (yt , Hrmt ) is achieved using the
input vector (xt ). An input-oriented measurement model is used in this study since it
is expected that banks provide their services at the minimum cost. The idea of constructing a QI using an input-oriented production model is derived from the study of
Malmquist (1953), where the input distance function was used to develop input quantity
indexes.
Dti ( xt , yt , Hrmt ) = Sup {l : (xt /l, yt , Hrmt ) [ St }, t = 0, 1, . . . . . . . . . , T

(1)

Here, l stands for a radial factor for adjusting output vectors position. The distance
function of QI or quality change for the above technology is presented below:

D0i (y0 , x0 , Hrm1 )D1i (y1 , x1 , Hrm1 )
.
QI (y , x , Hrm , y , x , Hrm ) =
D0i (y0 , x0 , Hrm0 )D1i (y1 , x1 , Hrm0 )
0,1

(2)

As shown by Malmquist (1953), we develop the HRM practices index as a ratio of distance functions in Equation (2). The value of this index (QI) depends on time period
(t = 0, 1); the input vector xt , t = 0, 1, and the output vector xt , t = 0, 1. Thus,
changes in the inputs and the outputs have a direct influence on the change of our
designed HRM QI. This production set satisfies the notion of disposability of inputs
and outputs since it assumed to be closed, bounded and convex as shown in the
studies by Coelli, Rao, ODonnell, and Battese (2005) and Chou, Shao, and Lin (2012).
The QI in Equation (2) is a geometric mean of two stated distance functions: time 0
and time 1 as the references. Thus, the index (QI0,1 ) gives a direct measure of changes in
HRM attributes as a part of the total production process. Moreover, the productivity
measure we used here, based on the same distance function, is an input-based Malmquist
productivity index shown by Caves, Christensen, and Diewert (1982). The technology is
shown in Equation (2) where we include the quality attribute. Hence, Equation (2) can be
expressed in the form of MI as shown below:
1 1
1
0 0
0
MI0,1
i (y , x , Hrm , y , x , Hrm )

D1i (y1 , x1 , Hrm1 )
D0i (y1 , x1 , Hrm1 )D0i (y0 , x0 , Hrm0 )
.
= 0 0 0
D1i (y1 , x1 , Hrm1 )D1i (y0 , x0 , Hrm0 )
Di (y , x , Hrm0 )

(3)

Fare, Grosskopf, and Roos (1995) decompose Equation (3) into three major aspects QI,
technical efficiency change (Eff), and technical changes (Tch). Since all the elements are

A.K.M. Masum et al.

in a multiplication form, the MI is assumed to be responsible for quality issues in output

function. Decomposition is shown in the following equation:
MI0,1
i



A0i (hrm1 )A1i (Hrm1 ) D1i (y1 , x1 )
D0i (y1 , x1 ) D0i (y0 , x0 )

.
=
D1i (y1 , x1 ) D1i (y0 , x0 )
A0i (Hrm0 )A1i (Hrm0 ) D0i (yt , x0 )

(4)

Here,

A0i (hrm1 )A1i (Hrm1 )
,
Quality Index(QI) =
A0i (Hrm0 )A1i (Hrm0 )

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Technical efficiency changes (Eff) =

D1i (y1 , x1 )
,
D0i (yt , x0 )


D0i (y1 , x1 ) D0i (y0 , x0 )
Technical changes (Tch) =

.
D1i (y1 , x1 ) D1i (y0 , x0 )

(5)

(6)

(7)

Technical efficiency changes (Eff) in Equation (6) can be further decomposed into pure
efficiency (PE) and scale efficiency (SE) as shown by Caves et al. (1982). An extended
version of Equation (4) is as follows:
Malmquist index with quality (MI) = QI0,1 Tch0,1 PE0,1 SE0,1 .

(8)

4.2. Computation of productivity and quality

We now show the computation technology of Equations (1) (3). The method is a nonparametric linear programming approach by Fare et al. (1995), where the inputs, outputs, and
the HRM practices are the coefficients. With a total k = 1, . . . , K observations of inputs
(xk,t ) and a total period t = 1, . . . , T, the production technology (Equation (1)) can be presented as follows:

(Dti (yk ,t , xk ,t , Hrmk ,t ))1 = min l.

Subject to,
K


n = 1, . . . , N

k ,t
zk,t xk,t
= l xn ,
n ,

k=1
K


m = 1, . . . , M

k ,t
zk,t yk,t
= ym ,
m .

k=1
K


k ,t
zk,t Hrmk,t
= Hrmj ,
j .

i = 1, . . . , J

k=1

zk,t .
= 0,

k = 1, . . . , K

(9a)

Total Quality Management

here zt is the intensity variable.

Technology for the HRM practices index is as below.

(D0i (yk ,0 , xk ,0 , Hrmk ,1 ))1 = min l.

Subject to,
K


n = 1, . . . , N

k ,0
,
zk,0 xk,0
n = lxn ,

k=1

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K


m = 1, . . . , M

. k ,0
zk,0 yk,0
m = ym ,

k=1
K


k ,1
zk,0 Hrmk,0
= Hrmj ,
j .

i = 1, . . . , J

k=1

k = 1, . . . , K

zk,t .
= 0,

(9b)

Finally, we calculate HRM practices index separately as shown in Equation (5).

So, (Q(Hrm0 ) and Q(Hrm1 ) need to be calculated separately using the following
technology:

0i (yk ,0 , xk ,0 ))1 = min l.

(D
Subject to,
K


k ,0
zk,0 xk,0
= lxn ,
n ,

n = 1, . . . , N

k=1
K


k ,0
zk,0 yk,0
= ym ,
m .

m = 1, . . . , M

k=1

zk,t .
= 0,

4.3.

k = 1, . . . , K

(9c)

HRM practices the QI

To express the overall HRM practices in a single indexed value as shown in Equation (4),
we assigned a regression model as used by Rhoades, Waguespack, and Young (2000). We
compressed the selected four indicators of HRM practices into one variable called overall
HRM practices (OvHR). Chang and Huang (2005), Chou and Chang (2008), Li, Liu, and
Meng (2012), and De Nicola et al. (2013) also used the following regression approach to
calculate QI for their studies.

A.K.M. Masum et al.

OvHRt = w0 + w1 (1/HRRec) + w2 (1/HRTrD) + w3 (1/HRCom)
+ w4 (1/HRToR) + 1t ,

(10)

here t 2004 2013, w0 is intercept; w1 , w2 , w3 , &w4 are the equation parameters, and 1t
denotes the statistical error. The regression value (significant coefficient of determinants
and significant parameter) at a satisfactory level indicates OvHR represents quality
aspects of HRM practices. In contrast, poor regression values suggest that OvHR values
have no, or less, significance in the calculation of the bank performance. We employed
the statistical package R, FEAR library, for the said calculation.

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5.

Empirical results

In the first section of this empirical result, we compute the relationship between OvHR
with the four major HRM QIs using the method described in Equation (10). We used
the pooled-ordinary least squares (OLS) method of the stated model as the data we
have are in panel format. The obtained results are summarised in Table 2.
From Table 2, it is seen that only the coefficients of regression for interception, HRTrD
and HRCom are significant at the 5% level. Thus, all the selected indicators of HRM practice are not significantly related and dependent on OvHR. Now, we run factor analysis to
compose all the four indicators in one OvHR. First, the Pearson correlation matrix is calculated and shown in Table 3. Then, the results of Table 3 are used for further factorial
analysis using the model of varimax rotation, and are presented in Table 5.
The results of the correlation matrix in Table 3 indicate a moderate level of positive
correlation among the selected HRM practice indicators. This suggests the presence of
an underlying common factor among the variables. Table 4 recapitulated models that
are independent in nature. Table 4 reveals that HR training and development, and HR compensation vary by 0.097% and 0.116% variance, respectively, if a smallest failure in
description happens followed by HRRec and HREr. The most contributing factor in
HRM practice is HRTrD followed by HRCom, HRToR, and HRRec with the factor
loading values of 0.877, 0.795, 0.521, and 0.352, respectively.
The results of the MI from Equation (3) and its decompositions in Equation (8) are
summarised in Table 5. All the results have a mean value for the study period of 2004
2013. Efficiency scores from both the local and foreign banks are separately listed in
Table 5. The results from Table 5 reveal that of 48 selected banks, only 12 banks have
scored an average progress in PE with a range of 9.8 34.9% annually. Among the 12
banks, only one of them is a foreign bank (City bank NA). This discloses that local
banks have progressed in terms of operations and fund management during the study
Table 2.

w0
1/HRRec
1/HRTrD
1/HRCom
1/HREr

Estimated regression model for OvHR.

Estimate

Std error

t statistics

p-Value

0.931
0.621
0.693
0.567
0.415

0.076
0.039
0.071
0.041
0.037

12.587
0.487
0.396
1.441
0.432

0.000
0.013
0.000
0.002
0.011

Note: R2, 0.264; F-statistic, 0.714; and p-value, 0.007.

Total Quality Management

Table 3.

1/HRRec
1/HRTrD
1/HRCom
1/HREr

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Table 4.

1/HRRec
1/HRTrD
1/HRCom
1/HREr

Pearson correlation matrix.

1/HRRec

1/HRTrD

1/HRCom

1/HRToR

1
0.297
0.435
0.346

1
0.324
0.301

1
2.953

Factorial analysis of OvHR.

Factor loading

Uniqueness

0.352
0.877
0.795
0.521

0.903
0.884
0.913
0.845

period. A similar result is observed in the case of SE between the local banks and the
foreign banks. Of 48 banks, 16 have progressed in terms of SE. Among them only one
scorer is from the foreign banks (HSBC bank). Such discrimination in results exposes
the failure of the foreign banks in optimising the size (SE) over the study period.
In terms of the Malmquist total productivity changes (MI), only 12 banks have scored
average progress. Among these banks, 10 are local banks and 2 are foreign banks, which
shows that foreign banks have not been successful in ensuring overall performance or in
catching up in the economics of scale in their operations compared to the local banks.
However, of the nine foreign banks, only three banks have scored a positive change in
HRM QIs, namely City bank NA, Habib bank, and Standard Chartered bank (SCB).
Most significantly, no local bank has progressed in terms of HRM practices over the
study period. Such a failure in bank performance highlights the need for a major consideration and regulatory action to improve overall bank performance for a sustainable banking
environment.
Thus, over the last 10 years, local banks in Bangladesh have not performed well in
terms of the HRM QI and technical aspects. However, progress is only attained in the
case of PE and SE. Together, these two are the components of technological efficiency,
which means that local banks are successful in achieving the economics of scale, while
the major sources of inefficiency are the lack of HRM practices and technical efficiency.
The foreign banks have failed to secure progress in efficiency in all of the performance
attributes except for the HRM practices during the study period. Again, such progress has
happened due to excess positive change in only three foreign banks. The authors identified a number of reasons behind such performance failure in the overall banking industry: (i) slow economic indicator (Gunter, Ahmed, Rahman, & Rahman, 2013), (ii) high
interest rate (Bank, 2012), (iii) failure in achieving targeted GDP (Gunter et al., 2013),
(iv) political instability (Tasnim, 2014), and (v) capital market crisis in 2010. Last but
not the least, poor customer confidence (Ahmed, Greenleaf, & Sacks, 2014) in the economic sector has pulled back the total economy in the reverse direction during the study
period that resulted in such a poor performance in both the local and foreign banks operating in Bangladesh.

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Table 5.

Result summary of MI and its components (20042013).

Domestic Banks

MI

QI

Tch

PE

SE

Foreign Banks

MI

QI

Tch

PE

SE

AB Bank
BCBL
Bank Asia
BRAC Bank
Dhaka Bank
DBBL
EBL
FBL
IFIC Bank
Jamuna Bank
Meghna Bank
MBL
Midland Bank
Modhumoti Bank
MTBL
NBL
NCC Bank
NRB Bank
NRB CB
NRB Global
One Bank
Prime Bank

1.011
0.824
1.313
1.013
1.008
1.053
0.614
0.333
0.580
0.964
1.058
1.226
0.795
0.864
0.634
0.713
0.925
0.700
0.673
1.057
0.788
0.800

0.947
0.794
1.019
0.948
0.797
0.794
0.719
0.578
0.874
0.744
0.978
0.778
0.718
0.794
0.719
0.877
0.784
0.794
0.719
0.874
0.874
0.837

0.948
0.994
1.319
0.983
0.948
0.938
1.194
0.789
0.948
0.997
0.994
1.199
0.974
0.974
0.947
0.978
0.978
0.918
1.049
0.949
0.974
0.937

0.984
0.947
0.983
0.948
1.338
1.194
0.719
0.794
0.719
1.349
0.957
1.349
1.167
0.948
0.997
0.794
1.121
0.974
0.974
1.344
0.978
0.978

1.144
1.103
0.994
1.147
0.997
1.184
0.994
0.919
0.974
0.963
1.137
0.974
0.974
1.179
0.934
1.047
1.076
0.986
0.916
0.948
0.946
1.043

Bank Alfalah
Citibank NA
CBCL
Habib Bank
HSBC Ltd
NBP
SCB
SBI
Woori Bank

0.551
1.181
0.550
0.907
1.142
0.578
0.721
0.606
0.610

0.997
1.196
0.894
1.119
0.974
0.984
1.307
0.933
0.834

0.797
0.916
0.947
0.983
0.948
0.836
0.748
0.813
0.935

0.778
1.176
0.768
0.917
0.918
0.783
0.746
0.844
0.874

0.891
0.917
0.846
0.899
1.347
0.897
0.988
0.946
0.895

0.794
0.936
0.913
0.780
0.976
0.984
1.167
0.737
0.642
0.671
0.641
0.946
0.450
1.013
0.779
1.024
0.827
0.852

0.774
0.874
0.794
0.919
0.974
0.948
0.797
0.794
0.719
0.794
0.764
0.904
0.478
0.983
0.948
0.938
0.974
0.829

0.974
0.919
0.974
0.974
0.937
0.974
0.974
0.974
0.937
0.983
0.948
0.938
0.974
0.948
0.934
0.963
0.948
0.980

0.918
0.974
0.989
0.948
1.098
1.094
1.119
0.974
0.974
0.937
0.964
0.974
0.983
1.148
0.938
0.971
0.944
1.013

1.148
1.197
1.194
0.919
0.974
0.974
1.344
0.978
0.978
0.918
0.918
1.146
0.983
0.947
0.938
1.168
0.949
1.032

0.761

1.026

0.880

0.867

0.958

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Pubali Bank
SBAC Bank
SBL
Standard Bank
CBL
PBL
TBL
UCBL
UBL
ALFL
EXIM Bank
FIBL
ICB Islamic
IBBL
SJIBL
SIBL
UBL
Geometric Mean

11

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A.K.M. Masum et al.

Table 6.

The robustness of results.

Parametric test

Test statistics

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QI
Local banks
Foreign banks
Total productivity (MI)
Local banks
Foreign banks

Non-parametric tests

t-test

MannWhitney test

Kruskall
Wallis test

t(Prb . t)

z(Prb . z)

X2(prb . X2)

Mean

Rank score

X2

0.863
0.937

21.315

49.18
57.62

22.362

4.657

0.852
0.971

22.978

38.54
49.36

21.655

3.582

Significant at the 5% level.

Significant at the 1% level.

6.

Robustness of the results

In order to check for robustness of the results, firstly, the inputs and outputs are altered to
derive new performance estimates. On the input side, number of employees (X3) is
replaced with total salary and wages to check the cost issue of banking operations. On
the output side, net income is replaced with net interest income to capture the main activities of banks other than fee-based operations. The new performance estimates are strongly
consistent with the previous ones. Secondly, it is assumed that the technology changes and
national characteristics during the study period (2004 2013) are negligible (estimates are
based on the pooled sample). Finally, we employed the Mann Whitney test the robustness of the results are similar to that of the earlier studies of Isik and Hassan (2002), and
Sufian, Kamarudin, and Noor (2014).
The summary of robustness tests is shown in Table 6. The t-test results reveal that in
terms of the QI, foreign banks have a indicated higher performance than that of local banks
(0.863 , 0.937). It is also seen that local banks are less efficient than the foreign banks
(0.971 . 0.852) in terms of the total productivity test. Again, the results obtained from
the non-parametric Mann Whitney test and Kruskall Wallis test revel that local banks
are less productive than the foreign banks in both the tests of HRM practice indicator
(QI) and MI. All the results obtained from Table 6 are significant at either 1% or 5% levels.
7.

Limitations and future research

The detailed investment information regarding HRM practice is rarely found in most
accounting reports (Vemic-urkovic et al., 2013). This trend is also observed in the
accounting reports of banks in Bangladesh. Future research is necessary to assess the
more detailed HRM practices in bank performance issues. One possible attempt is considering panel data-based parametric analysis for selecting the most influential HRM factors
in bank performance with a greater number of contextual variables.
8.

Conclusion

Banks are the most used intermediary outfits for transferring financial resources in
an economy. Quality in HRM practices is therefore a value transferring element in

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Total Quality Management

13

banks. It is assumed in this study that the HRM practices in organisations improve the
overall performances of banks. This paper uses an established DEA model with HRM
practices as a QI for measuring the performance of 48 banks in Bangladesh over the
period 2004 2013. The significance of this model is that it allows the detection of the
best-practice firms with a direct impact of HRM practices on respective performance
scores.
This paper contributes to the existing literature with three major issues regarding the
exercise on bank performance and quality. Firstly, this paper examines the banks in Bangladesh that have attracted little research so far (Liu et al., 2013; Rashedul & Israt,
2012) despite their importance in the regional economy. Secondly, this performs bank
performance measurement using a HRM QI within the sphere of DEA MI models,
and finally, offers interesting insights into the existing literature with a connection to
the contextual variables (e.g. HRM). To be more specific with relation to the banking
literature, this paper presents evidence that heterogeneity in the banking sector may
lead to a significant difference in performance scores. A reason for the foreign banks
not contributing to performance may stem from the fact that local banks enjoy better
business environment and government regulations compared to foreign banks
(Tasnim, 2014).
The results from the MI reveal that only eight banks scored an average positive change
in terms of PE. Only 7 banks scored an average positive change out of 48 banks in terms of
total productivity. Local banks scored higher progress in SE compared to foreign banks.
The majority of the foreign banks achieved a positive technical change (Tch) during the
study period. Most importantly, no local bank gained a positive HRM QI change.
However, of nine foreign banks, only two banks scored positive changes, namely City
bank NA and Standard Chartered bank.
The results and findings presented in this paper can be used as a groundwork transmission tool by the bank regulators, investors, and managers to determine the role of a particular bank compared with the total banking industry. More specifically, the policy
implications, especially for HRM practices, of the above findings are to use appropriate
benchmarking exercise to increase competition among the peer banks. Furthermore, attention by the regulatory body can be directed at the lowest scorer banks as some of them
would be in need of further monitoring and even intervention. We expect that results
from this study will lead to provision of more funds for the development of human
resource in the banking sector.

Acknowledgements
The funder had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.

Disclosure statement
No potential conflict of interest was reported by the authors.

Funding
This research was funded by grants awarded by Bright Spark Scheme of the University of Malaya,
Malaysia.

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