X-efficiency analysis of commercial banks in Pakistan : a preliminary investigation

The paper attempts to analyse the x-efficiency, decomposed into technical and allocative efficiency, of 40 commercial banks in Pakistan, 19 being local and 21 foreign, using the Data Envelopment Analysis (DEA) approach. The study appears to be relevant in the wake of the on-going process of deregulation and liberalisation of the banking sector in the economy initiated since 1990. The results of the study reveal that technical efficiency, reflecting the productivity of inputs, of Pakistani banks is found to be lower than the allocative one. Private banks in Pakistan emerged as efficient on both fronts, i.e., technical efficiency and allocative efficiency, as compared to their counterparts, the public and foreign banks. The study calls for improvement in efficiency of Pakistani banks through combined efforts of the banking sector and the government. (Pak Development Rev/DÜI)