The role of human resource management practices in bank performance

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 2004–2013. 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.