A comparison on efficiency of Domestic and foreign banks in Pakistan: A DEA Approach
Keywords:
Data Envelopment Analysis (DEA), Regression, Ratio analysis, Local, Foreign, Pakistan, Comparison and Banks.Abstract
This study utilizes non parametric Data Envelopment Analysis (DEA) to analyze and compare the efficiency of foreign and domestic banks in Pakistan. The analysis is based on a panel data set of 3 domestic banks (MCB, NBP, and Bank Al Habib) and 3 foreign banks (SCB, DIB, Al Baraka Bank) in Pakistan over the period of 2009- 2013. Regression and Ratio analysis approach is used to define the inputs and outputs in computerizing the efficiency scores means that which bank is more efficient performance in Pakistan. Unexpectedly, the findings are conflicting with most of the findings of previous studies where the foreign banks were outperforming their domestic peers in term of efficiency in the Pakistan. On the other hand, same in Pakistan the finding of this study shows that foreign banks have a higher efficiency level than domestic banks and that is only one foreign bank SCB this imply that domestic banks are relatively more managerially efficient in controlling their costs. The second stage of the empirical results is based on the regression model and the ratio analysis, which suggests that the efficiency of banks in Pakistan is mainly affect by capital strength, loan quality, expenses, and asset size, ROA, ROE and Liquidity through the EVEIWS.
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