Analyzing Money Market Performance through Banking Efficiency Using Non-Parametric Data Envelopment Analysis

Abstract

Using non-parametric Data Envelopment Analysis (DEA), this research aims to investigate the relationship between banking efficiency and money market performance, thereby approximating the situation of banks in Pakistan. From 2007 to 2021, the data spans CRS (Constant Returns to Scale), VRS (Variable Returns to Scale), and ScE (Scale Efficiency) models. According to the results, generally speaking, foreign banks performs better than both public and private banks in most efficiency criteria. This was clear in terms of resource management and scale efficiency. Conversely, public institutions even if they were less efficient than foreign ones—shown superior scale efficiency than private banks. Oddly enough given current opinions, private banks displayed the lowest general efficiency ratings.

Furthermore shown by the study is a close relationship between banking efficiency and the state of the money market. When it comes to liquidity, stability, and risk management, banks who more wisely handle resources often show greater performance. If banks and legislators wish the financial industry to operate better, the report advises them to raise their game by streamlining processes and more cleverly managing resources. Particularly in Islamic and specialized banking systems, these results could contribute a small bit to the body of knowledge already in use on financial intermediation and create opportunity for more research.