Financial liberalization and bank efficiency: a comparative analysis of India and Pakistan

By Ali Ataullah *, T. Cockerill, H. Le. 2004

259 citations recorded by the source corpus.

This paper provides a comparative analysis of the evolution of the technical efficiency of commercial banks in India and Pakistan during 1988–1998, a period characterized by far-reaching changes in the banking industry brought about by financial liberalization. Data Envelopment Analysis is applied to two alternative input–output specifications to measure technical efficiency, and to decompose technical efficiency into its two components, pure technical efficiency and scale efficiency. The consistency of the estimated efficiency scores are checked by examining their relationship with three traditional non-frontier measures of bank performance. In addition, the relationship between bank size and technical efficiency is examined. It is found that the overall technical efficiency of the banking industry of both countries improved gradually over the years, especially after 1995. Unlike public sector banks in India, public sector banks in Pakistan witnessed improvement in scale efficiency only. It is also found that banks are relatively more efficient in generating earning assets than in generating income. This is attributed to the presence of high non-performing loans. In addition, it is found that the gap between the pure technical efficiency of different size groups has declined over the years.

Subfields: Economics and Econometrics, Finance, Management Science and Operations Research

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Citations in the corpus

Estimating the technical and scale efficiency of Greek commercial banks: The impact of credit risk, off-balance sheet activities, and international operations (2008, background): “…be proportionally 4 Examples of recent studies that use DEA are among others Haslem et al. (1999), Maudos et al. (2002a), Casu and Molyneux (2003), Drake and Hall (2003), Luo (2003), Ataullah et al. (2004), Hauner (2005), Ataullah and Le (2006), Casu and Girardone (2006), Drake et al. (2006).”
International evidence on the impact of regulations and supervision on banks’ technical efficiency: an application of two-stage data envelopment analysis (2007, unknown): “Some studies consider other countries in addition to European ones, such as Japan, USA, and Canada (e.g. Allen and Rai, 1996; Maudos and Pastor; 2001).”
Factors Affecting Bank Profitability in Pakistan (2011, background): “Ataullah et al. (2004) made a comparative analysis of commercial banks in India and Pakistan during 1988-1998.”
Assessing bank efficiency and performance with operational research and artificial intelligence techniques: A survey (2010, unknown): “However, Ataullah and Le (2004) find that prior to the financial liberalization of 1991–1992, foreign banks were less efficient than domestic ones in India and Pakistan; nevertheless, the opposite picture emerged after this period. Other studies examine the efficiency of state-owned banks. Many of t”
Privatization, foreign bank entry and bank efficiency in Croatia: a Fourier-flexible function stochastic cost frontier analysis (2006, methodology): “Ataullah et al. (2004) explore bank efficiency in response to financial liberalization in India and Pakistan.”
Economic reforms and bank efficiency in developing countries: the case of the Indian banking industry (2006, background): “An improvement (or a lack of improvement) in the efficiency is then attributed to the success (failure) of the reforms to encourage/enable banks to utilise their resources more efficiently (see Leightner and Lovell, 1998; and Ataullah et al., 2004).”
Determinants of Bank Profitability in Pakistan: Internal Factor Analysis (2011, background): “Ataullah et al. (2004) made a comparative analysis of commercial banks in India and Pakistan during 1988-1998.”
Impact of financial reforms on efficiency of state-owned, private and foreign banks in Pakistan (2010, unknown): “…1998, which may be explained by freezing of foreign currency accounts leading to sharp fall in foreign currency deposits of foreign banks and a contraction in their assets.8 These results are in line with the conclusions drawn by Ataullah et al. (2004) for Pakistani banks around the same period.”