Abstract:
Financial regulations are most important to progress the liquidity and solvency of
financial institutions for every country in the globe. Strict financial regulations may be
making safe for bank stability, but not appropriate to enhance the banking efficiency. The
study empirically investigates how the previously executed financial regulations enforce by
state bank of Pakistan (SBP), have an effect on individual bank’s banking efficiency. This
study employs sample of 09 commercial banks of Pakistan over a period of time2010 to
2014 on a quarterly basis in Pakistan.
Unlike other studies, this study employs the total assets structure of commercial banks for
categorization of commercial banks and categorized banks like large banks, medium banks
and small banks. This study employs Data Envelop Analysis (DEA) to compute the banking
efficiency of commercial banks in Pakistan. Panel data analysis is used to describe the
relationship between financial regulations and banking efficiency of commercial banks for
sample selected commercial banks in Pakistan.
The empirical results expose that high reserve ratio guide to reduce the banking efficiency
of small and large commercial banks. Furthermore, the results also disclose that the capital
adequacy ratio is originated to be unimportant with banking efficiency for all sample
selected commercial banks in Pakistan. Similarly, liquidity ratio and nonperforming loans
to total loans, loan to deposit ratio and reserve ratio have been found to be significant for
large commercial banks while the capital adequacy ratio is found to be significant for
medium and small banks in Pakistan.
