Technical Efficiency of Domestic Commercial Banks: A Case Study of Pakistan

Abstract

The study applied Data Envelopment Analysis (DEA) to inspect the technical efficiency of Domestic commercial banks in Pakistan for a period of 2006-2008. Two basic models (CCR and BCC) of DEA were used in their input orientation.  The results of 16 banks under CCR model showed that 3 banks were efficient in year 2006 and 2008 while 2 banks were efficient in year 2007. Two banks (HMP and MCB) were efficient throughout the study period. Under BCC model, 6 banks achieved 100% efficiency level in 2006, 7 banks in 2007 and 8 banks in 2008 showing improvement in managerial efficiency. Two banks namely HMP and MCB were found efficient under Both CCR and BCC models and were also 100% scale efficient. The results also revealed that technical inefficiency in the banks under study was mainly caused by not operating at optimum scale.

Keywords: Data Envelopment Analysis, Technical Efficiency, Commercial Banks, CCR, BCC, Managerial Efficiency, Scale efficiency