International Research Journal of Finance and Economics
ISSN 1450-2887 Issue 25 (2009)
© EuroJournals Publishing, Inc. 2009
http://www.eurojournals.com/finance.htm
Efficiency Dynamics and Financial Reforms: Case Study of
Pakistani Banks
Usman Ahmed1
Staff Economist, Pakistan Institute of Development Economics (PIDE)
Islamabad Pakistan
E-mail: rohanahmed2001@yahoo.com
Tel: +92-51-9201240; Fax: +92-51-9110886
Shujaat Farooq
PhD Student, Pakistan Institute of Development Economics (PIDE)
Islamabad Pakistan
E-mail: shjt_farooq@yahoo.com
Tel: +92-332-8306825; Fax: +92-51-9110886
Hafiz Hanzla Jalil
Staff Economist, Pakistan Institute of Development Economics (PIDE)
Islamabad Pakistan
E-mail: hanzla_jalil@hotmail.com
Tel: +92-51-9201240; Fax: +92-51-9110886
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
Keyword