Assessing the Determinants of Efficiency: An Empirical Evidence from Developing Economy

Warda Nadeem, Nadeem Iqbal and Hassan Hanif

Journal of Economic Impact, 2022, vol. 4, issue 1, 71-80

Abstract: Increasing banks' efficiency may help boost the country's economic activity. This study aims to focus on the Pakistani bank’s technical efficiency over the period 2014 to 2019. The study adopts the non-parametric estimation technique based on the output-oriented CCR model to measure banks' technical efficiency scores. The obtained results revealed that the six banks from 30 that remain technically efficient in the sample period from 2014-2019 were Bank Alfalah Ltd, CITI Bank NA Pakistan, Habib Metropolitan Bank Ltd, Industrial Development Bank, MCB Bank Ltd and Samba Bank Ltd. So, other banks should follow the efficient utilization of resources as these banks are utilizing and set as a benchmark of Technical Efficiency. From the results of GMM, it is concluded that the firm-specific determinants that have a significant negative effect on technical efficiency in the case of Pakistan are leverage. In contrast, profitability and solvency have a significant positive impact on the technical efficiency of banks. However, bank size and liquidity are found to be insignificant. Among the macroeconomic variables, GDP has a significant positive impact, whereas interest rate and regulatory quality have a significant negative effect on the technical efficiency of banks in Pakistan. However, political stability was found to be insignificant. The findings of this study have important policy implications for regulators and managers by focusing on the minimal utilization of input and by maximizing output through better management of resources like fixed assets, labor, operating expenses, deposits, and equity. To maximize the outcomes of the banks that are an investment, net profit, loans, other earning assets, and non-interest income, banks can maximize their technical efficiency. Secondly, the banking efficiency could also be enhanced through firm-specific and macroeconomic variables.

Keywords: Technical efficiency; Pakistani banks; Panel data; DEA (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:adx:journl:v:4:y:2022:i:1:p:71-80

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