I= MEASURING COST EFFICIENCY AND PRODUCTIVITY CHANGE OF COMMERCIAL BANKS IN PAKISTAN 1991-2000
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Title of Thesis
MEASURING COST EFFICIENCY AND PRODUCTIVITY CHANGE OF COMMERCIAL BANKS IN PAKISTAN 1991-2000

Author(s)
Ghulam Shabbir Khan Niazi
Institute/University/Department Details
Department of Administrative Sciences/ Quaid-i-Azam University Islamabad
Session
2003
Subject
Administrative Sciences
Number of Pages
176
Keywords (Extracted from title, table of contents and abstract of thesis)
commercial banks, cost efficiency, productivity change, foreign banks, private banks, banking efficiency, malmquist productivity

Abstract
The banking sector in Pakistan experienced different reforms from time to time, but specially during 1990€™s decade. This study explores the efficiency, performance and productivity growth of commercial banks in Pakistan over 1991-2000 period. After collection of data from the annual reports of the banks, input/output variables were defined under intermediation approach. The non-parametric model DEA was used to estimate the cost efficiency, allocative efficiency, technical efficiency, pure technical efficiency, and scale efficiency scores of each bank. This model was employed separately on ownership (i.e. state-owned, private, and foreign) basis and on pooled sample data on year base. It was statistically justified the pooling of data of all commercial banks. The results of DEA model show that the commercial banks in Pakistan have to improve their efficiency, as their average cost efficiency score is very low from the world cost efficiency level. Results show that that the main source of inefficiency is the allocative inefficiency rather than the technical inefficiency, which is mainly due to the regularized banking sector in Pakistan. It is revealed that the foreign banks are the most efficient banks in Pakistan, while state-owned banks are the least efficient. The private banks are performing better than the state-owned banks. It is also found that the foreign banks are more scale efficient than their domestic counterparts. The majority of the domestic banks are over expanded. The parametric model results suggest that the inefficiency of the banking sector in Pakistan is due to managerial inefficiency rather than random error. Thus it indicates that the DEA results could be relied upon. Non-parametric Malmquist productivity index suggests that the productivity of commercial banks decreased by 1.8% per annum.

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4697.43 KB
S. No. Chapter Title of the Chapters Page Size (KB)
1 0 Contents
237.52 KB
2 1 Introduction 1
157.11 KB
  1.1 Background 1
  1.2 Motivation For This Study 21
  1.3 Specific Objectives Of The Study 5
  1.4 Organization Of The Study 6
3 2 Overview Of Banking Environment 7
544.41 KB
  2.1 Background 7
  2.2 Initial Phase Of Banking Sector Development, 1947-1973
  2.3 Banking Sector Reforms In 1970s 11
  2.4 Banking Reforms In 1990s 14
4 3 Literature Survey Of Banking Efficiency 27
926.06 KB
  3.1 Introduction 27
  3.2 The Econometric Approach 30
  3.3 The Non-Parametric Approach 35
  3.4 Malmquist Total Factor Productivity 41
  3.5 Cross-Country Evidence On Banking Efficiency 46
  3.6 Reviewing Empirical Evidence On Pakistan €™s Banking Industry 48
  3.7 Defining Banking Inputs And Outputs 54
5 4 Methodology 59
344.98 KB
  4.1 A Graphical Exposition Of The Efficiency Measures 59
  4.2 The Programming Approach: The DEA Frontier Model 62
  4.3 The Econometric Approach: The Stochastic Frontier Model 66
  4.4 Measuring Malmquist Productivity Index 70
6 5 Banking Data And Construction Of Variables 77
401.37 KB
  5.1 Introduction 77
  5.2 Data Source 78
  5.3 Construction Of Variables 78
  5.4 Sample Statistics For Inputs, Outputs, And Prices Of Inputs 80
7 6 Empirical Results Of Banking Efficiency 89
1376.79 KB
  6.1 Common Across Time Vs. Separate Efficiency Frontier 89
  6.2 Same Or Distinct Production Technology By Type Of Bank 90
  6.3 Measuring Banking Efficiency By The DEA Approach 94
  6.4 Stochastic Frontiers And Technical Efficiency Of Banks 118
  6.5 Explaining Determinants Of Efficiency Of Commercial Banks 123
8 7 Measuring Productivity Growth Of Commercial Banks In Pakistan 142
236.1 KB
  7.1 Malmquist Productivity Index 142
  7.2 Factors Explaining Productivity Change 147
9 8 Summary And Conclusions 153
205.58 KB
10 9 References 161
370.19 KB
11 10 Appendix Tables 170
131.18 KB