Performance Evaluation of Banks in Pakistan Based on Market Value Ratios –An Application of Data Envelopment Analysis

Abstract

Performance and efficiency evaluation in organizations has gained considerable importance in thepast three decades. Different techniques and tools have emerged including the Data Envelopment Analysis(DEA) model. This paper analyses the performance efficiency of listed Pakistani commercial banks based on their market value ratios, namely the Market Price/Earnings (P/E) ratio and the Market Price/Book Value (P/B) ratio and then develop a ranking. The DEA technique is a linear programming methodology which measures the relative performance of similar firms using a variety of identical inputs and a variety of similaroutputs. All of the 20 commercial banks that are listed on the Pakistan Stock Exchange are included in thestudy. The data pertains to 2018. As per the findings, the top five banks that are exhibiting the highest levelof relative efficiency based on their market value ratios are Faysal Bank Limited, Bank Islami Pakistan Limited, Habib Metropolitan Bank Limited, Meezan Bank Limited and Habib Bank Limited.