Evaluate the performance of banking sector in Pakistan with approach of Data Envelopment Analysis

Abstract

This study measures the relative efficiency of 21 commercial banks in Pakistan for the period of 2009-2014 with an integrated approach includes Data Envelopment Analysis. It uses four inputs (deposits, interest expense, non-interest expense and number of branch) and three outputs (total loans, interest income and non-interest income) in terms of production approach. According to empirical result, state-owned commercial banks are efficient in data envelopment analysis model. However, foreign-owned commercial banks have overall lower efficiency scores than government owned and higher then private owned commercial banks. The results also suggest that inefficient banks should especially improve their loans and should focus on their expenditure. Moreover, more than half of the commercial banks are scale efficiency. The results of the study may be useful for the bank managers in assessing their performance.