Efficiency in the Pakistani Banking Industry: Empirical Evidence after the Structural Reform in the Late 1990s

This article examines the change in technical (in)efficiency of the Pakistani banking industry after the structural reform started in the late 1990s. With international assistance, the Pakistani government has undertaken the restructuring and preparation for privatisation of national commercial and development banks, of which the main goal is the improvement of the efficiency in financial markets. Despite the small sample size, the estimated stochastic production frontier indicates that employees are statistically productive, but capital in terms of branch network is not productive. This is an example counter to the common view that in a less developed banking industry, employees are too often idle and are not productive at all. It is also shown that the efficiency performance of the structural adjustment programmes is in marked contrast among banks. Some banks are found to have improved their technical efficiency during the reform period, while the efficiency improvement of others was ambiguous.