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Efficiency Dynamics and Financial Reforms: Case Study of Pakistani Banks

Author

Listed:
  • Ahmad, Usman
  • Farooq, Shujaat
  • Jalil, Hafiz Hanzla

Abstract

Banking sector in Pakistan were facing problems of weak health and low profitability due to various factors i.e. low productivity, high intermediation cost (high cost deposits), huge expenditures on establishment, over staffing, large number of loss making branches and mismanagement of funds etc. Owing to this, banking sector in Pakistan was under great deal of pressure to maintain their profitability. To overcome these issues, Pakistan undertook financial sector reforms in early 1990s with financial support of World Bank and Japanese government under the banking sector adjustment loan (BSAL) program. The main goal of these reforms was to improve the Total Factor Productivity (TFP) of financial system through separating ownership, management and strengthening the accountability mechanism. Using the data sets of 20 domestic commercial banks of Pakistan, this study is intended to measure the banking efficiency through Data Envelopment Analysis (DEA) Malmquist Index of Total Factor Productivity (TFP) from 1990 to 2005 to access the impact of reforms on banking sector. The analysis is useful not only for policy makers but it also assess the impact of reforms on domestic commercial banks of Pakistan

Suggested Citation

  • Ahmad, Usman & Farooq, Shujaat & Jalil, Hafiz Hanzla, 2009. "Efficiency Dynamics and Financial Reforms: Case Study of Pakistani Banks," MPRA Paper 15054, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:15054
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    File URL: https://mpra.ub.uni-muenchen.de/15054/1/MPRA_paper_15054.pdf
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    References listed on IDEAS

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    1. Mohammad Hanif Akhtar, 2002. "X-efficiency Analysis of Commercial Banks in Pakistan: A Preliminary Investigation," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 41(4), pages 567-580.
    2. Piyu Yue, 1992. "Data envelopment analysis and commercial bank performance: a primer with applications to Missouri banks," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 31-45.
    3. Berger, Allen N. & Humphrey, David B., 1997. "Efficiency of financial institutions: International survey and directions for future research," European Journal of Operational Research, Elsevier, vol. 98(2), pages 175-212, April.
    4. Aly, Hassan Y, et al, 1990. "Technical, Scale, and Allocative Efficiencies in U.S. Banking: An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 211-218, May.
    5. Parkan, Celik, 1987. "Measuring the efficiency of service operations: An application to bank branches," Engineering Costs and Production Economics, Elsevier, vol. 12(1-4), pages 237-242, July.
    6. Syed Fawad Ali Rizvi, 2001. "Post-liberalisation Efficiency and Productivity of the Banking Sector in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 40(4), pages 605-632.
    7. Rangan, Nanda & Grabowski, Richard & Aly, Hassan Y. & Pasurka, Carl, 1988. "The technical efficiency of US banks," Economics Letters, Elsevier, vol. 28(2), pages 169-175.
    8. Berg, Sigbjorn Atle & Forsund, Finn R. & Hjalmarsson, Lennart & Suominen, Matti, 1993. "Banking efficiency in the Nordic countries," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 371-388, April.
    9. Nadeem Ul Haque, 1997. "Financial Market Reform in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 36(4), pages 839-854.
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    Citations

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    Cited by:

    1. Kumar, Ronald/R, 2011. "Role of Trade, Aid, Remittances and Financial Development in Pakistan," MPRA Paper 38871, University Library of Munich, Germany.
    2. repec:ipn:libros:006 is not listed on IDEAS
    3. Rodrigo Gómez Monge, 2012. "El sector bancario en México, los depósitos a plazo y las cuentas de ahorro: un análisis de eficiencia durante el periodo de internacionalización a través de la envolvente de datos (dea)," REVISTA CIENCIAS ESTRATÉGICAS, UNIVERSIDAD PONTIFICIA BOLIVARIANA, June.
    4. Martina Chinazom Okorie & David Onyinyechi Agu, 2015. "Does Banking Sector Reform Buy Efficiency Of Banking Sector Operations? ? Evidence from Recent Nigerias Banking Sector Reforms," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(2), pages 264-278, February.

    More about this item

    Keywords

    Reforms; Banking; TFP analysis;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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