Efficiency Change in Pakistan Commercial Banking Sector: A Pre and Post Digital-Restructuring Analysis

Abstract

In this study we examine the technical efficiency of commercial banking sector of Pakistan. In recent past Pakistan’s commercial banking is making substantial investment and up-gradation in information and communication technology (ICT) in order to keep pace with global banking industry. Due to financial linearization the entry of the foreign banks with advance technology in the commercial banking sector has been increased that inclines other banks to adopt the new technology in order to earn more of market share. To justify the huge investments in computers and related technologies many question arises about the efficiency & productivity growth of the banks due to ICT. Accordingly, this study analyzes the efficiency of a sample of 11 commercial banks for the period 1998 to 2012. Using data envelopment analysis (DEA) we measure the Malmquist productivity index (MPI) to measure total factor productivity (TFP). In this study the time period (1998-2012) has been decomposed into pre-digital reforms (19982005) & post-digital reforms (2006-2012) period, in order to compare the efficiency change after the adaptation of IT by commercial banking sector. The variables are selected under intermediation approach. The results show that technical efficiency has been significantly increased in post-digital reform era and as a result TFP has also been boosted. The results show that MCB has consistently scored the highest efficiency & Malmquist TFP scores.

Does The Digital Marketing Capability of Indonesian Banks Align with Digital Leadership and Technology Capabilities on Company Performance?

“…However, the effect on company performance is not more significant compared to digital technology and marketing capabilities. The results support the previous researchers' opinions [14,21,26,39,40]. In this case, the role of digital leadership is very important in encouraging the successful implementation of digital technology in the company's work processes.…”

“…Then, previous research measures the changes in efficiency in Pakistan's commercial banking sector by analyzing pre-and post-digital restructuring. The research results show that there has been a significant increase in technical efficiency in the post-digital reform era [14]. Likewise, digital marketing increases competitiveness and service delivery to its customers [15].…”

“…In other words, it does not bring benefits to organizational performance [20]. Nearly 70% of banks worldwide do not have a systematic digital strategy [14]. Lack of digital leadership is the number one problem of hindering digital business [21].…”

Efficiency and productivity analysis of Pakistan's banking industry: ADEAapproach

“…Results indicate a positive efficiency improvement in the commercial banking industry. Mustafa and Mehmood (2015) measured the efficiency and productivity change for few numbers of CBs of Pakistan and compare the efficiency change of pre-digital and post-digital periods. To measure the efficiency of conventional and Islamic banking in Pakistan, Saeed, Ali, Adeeb, and Hamid (2013) found that conventional banking performance is relatively better than Islamic banking in terms of operational efficiency for the specific time period.…”

Profitability Paradox: Evidence from Commercial Banks in Pakistan

“…They argue that ITintensive industries in USA have not even registered a fast growth as compared to non-IT-intensive industries and there is a very minute productivity growth in such industries. Mustafa and Mehmood (2015) reported that technical efficiency and total factor productivity of banks in Pakistan have been significantly increased in post-digital reform era. Lee, et al (2016) suggested that seeing constant upsurges in IT investment, the IT itself cannot create value rather what matters is the way IT is employed to generate business outcomes.…”