Efficiency and productivity analysis of Pakistan's banking industry: A DEA approach

Abstract

AbstractThe objective of this study is to investigate operational efficiency, productivity, and associated differences between the operational efficiency and productivity of Pakistan's private, public, and foreign banks over the period 2006–2017. To measure the operational efficiency scores and productivity growth change, we used data envelopment analysis (DEA) and Malmquist productivity index (MPI) simultaneously. Kruskal–Wallis test was used to check the significant differences between the mean technical efficiencies of different commercial banking industries of Pakistan. Empirical results revealed that mean technical and pure technical efficiency scores of foreign banks are better than domestic banks; however, the mean scale efficiency score of domestic banking is relatively better than foreign banks. Further public sector banks performed well than the private banking industry during the period 2006–2017. Kruskal–Wallis test demonstrated a significant difference between the mean technical efficiency scores of three different banking sectors (public, private, and foreign) of the Pakistan commercial banking industry. Moreover, the MPI results indicated that there is (1.9%) decline in mean total factor productivity change for all commercial banks during the sample period. Further, total factor productivity change of foreign commercial banks shows growth, while a decaying trend is observed for domestic commercial banks.