“Bank Privatization and Performances: Empirical Evidence from Pakistan”

A thesis submitted

By

NAVED ANJUM (2522)

To

Dr. Muhammad Azam

In partial fulfillment of the requirement for the degree of

MASTER OF BUSINESS ADMINISTRATION

In

FINANCE

This thesis has been accepted for

THE FACULTY OF BUSINESS ADMINSTRATION

IQRA UNIVERSITY, KARACHI, PAKISTAN

MAY, 2010

By: _________________________________ Dr. Muhammad Azam

Bank Privatization and Performances: Empirical Evidence from Pakistan I

Acknowledgement

Perfection was watch word I had in my mind when I started working on this thesis. However,

people generally agree that man can approach excellence but never actually achieve it. Exquisite

Perfection is rather trait of God, and by His Grace, I tried very hard to make thesis meritorious.

It would be privileged to say special thanks to all teachers who became part of my

proposal and provided valuable information & support.

I wish to express my grateful appreciation to my supervisor Dr. Muhammad Azam, Faculty of

Finance, Iqra University for his guidance, appreciation, encouragement and valuable time

throughout the period and for bearing with me. Without his guidance this thesis would not have

been possible.

I would also like to appreciate the cooperation extended by my colleagues, IUGC

Management and state bank librarian. The network administrator at the multimedia laboratory at

the campus needs applause for allowing access to national and international databases pertaining

to the problem under study.

Lastly I am grateful to my family and friends for all their support and cooperation.

Bank Privatization and Performances: Empirical Evidence from Pakistan II

Table of Contents

List of Tables................................................................................................................................IV

Abstract..........................................................................................................................................1

Chapter 1 Introduction.................................................................................................................2

1. 1. Background: 3

1.2. Contextual Frame Work: 5

1.3. Problem Identification: 6

1.3.1. Research Questions: 7

1.4. Purpose of the study: 7

1.5. Significance of the study: 7

1.6. Scope: 8

1.7. Limitation: 8

1.8. Delimitation: 8

1.9. Justification: 9

Chapter 2 Literature Review......................................................................................................10

2.1. Literature: 11

Chapter 3 Methodology...............................................................................................................28

3.1. Data & Methodology: 29

3.1.1. Introduction: 29

3.1.2. Objective: 29

3.2. Research Approach: 29

3.2.1. Quantitative Approach:29

3.3. Research Design: 30

3.3.1. Casual Comparative Research Design:30

3.4. Data Source: 31

3.5. Selection of sample: 31

3.6. Paired sample t test technique:32

3.6.1. Research Hypothesis 33

3.6.2. Test Hypothesis33

3.7. Variables Description: 33

3.7.1. Return on assets (ROA) 34

3.7.2. Return on Equity (ROE) 34

Bank Privatization and Performances: Empirical Evidence from Pakistan III

3.7.3. Net Interest Margin (NIM) 35

Chapter 4 Data analysis..............................................................................................................36

4.1. Data Analysis: 37

Table 4.1: Summary Statistics for all Banks 37

Table 4.2: Paired Samples Test for all Banks 39

Table 4.3: Paired Sample Test for Individual Banks 42

Chapter 5 Conclusion..................................................................................................................43

5.1. Conclusion: 43

5.2. Findings: 43

5.3. Recommendation: 43

References:43

Appendix: 43-57

Bank Privatization and Performances: Empirical Evidence from Pakistan IV

List of Tables

Table No 4.1: Paired sample statistics for all banks…….………………………………………37

Table No 4.2: Paired sample Test for all banks….……………………………………………...39

Table No 4.3: Paired sample Test for individual banks…………….…………………………...42

Appendix A: Paired sample statistics for ABL bank….………………………………………...54

Appendix B: Paired sample statistics for MCB bank.....………………………………………...55

Appendix C: Paired sample statistics for HBL bank.……………………………………………56

Appendix D: Paired sample statistics for UBL bank…………………………………….............57

Abstract

This study is investigating the effects of bank privatization on bank performances in comparison

to before and after privatization in the context of Pakistan. The sample data have been taken

from annual report of four privatized banks named as Muslim commercial bank ltd (MCB),

United bank ltd (UBL), Allied bank ltd (ABL) & Habib bank ltd (HBL) of Pakistan dated from

1985 to 2009 period. Whereas I have used paired sample t test technique to measure the financial

performances of privatized banks in terms of profitability (i.e. Return on asset & Return on

equity) and efficiency ratio (i.e. Net interest margin) in both case of pre and post privatization

period by applying paired sample t test technique to support my study. On basis of findings, I

conclude that the performances of government banks are improved after getting privatized in the

frame of Pakistan.

Keywords: Bank Privatization, and Bank Performance.

Chapter 1

Introduction

1. 1. Background:

Privatization and restructuring has been the centre of national reform programs and an important

aspect for many of the developed nation plus emergent and intermediary economies too.

Privatization is a process in which government organization or firms transformed its ownership

from government into private owned enterprises. It is a process whereby the activities or

enterprises that were once performed or operated by the government and its employees are now

performed, managed or owned by private business. The objective of privatization is eroded the

monopoly of government banks by raising competition level in the banking sector through

bringing change as technological reform, quality work with innovative products and services.

Reformation (restructuring) of government asset is considered as substitute one to de-

nationalization (privatization) in case of bringing changes in services, standards and

improvement in performances. But sometimes, it is better to privatize the organization after its

restructuring process because it may have additional advantage to utilize the organization

resources efficiently. For that purpose, the whole process and concerned information related to

either privatization or restructuring process, should be keep transparent so that the act of

privatization or restructuring brought positive results and improvement in performances as

compare to before and after privatization.

Whereas the broad definition of privatization would include all such measures which restrict the

scope of government intervention in the economy and implement all such techniques and

procedures to encourage the competition among private and domestic firms through eliminating

barriers of trade in the industry. On the other hand, narrow definition includes only the

transformation of government ownership into private owned organization, with a particular

reference to the sale of assets.

The phenomena of privatization has been taken place in many developed, the developing

countries and even in transition economies and implementing many privatization programs to

improve the performance of non financial institution and financial institution including banks.

This research study investigates the relationship between “Bank Privatization and Performance:

Empirical Evidence from Pakistan”

Whereas Privatization in Pakistan has aimed to achieve the following:

Development of financial institution.

Broaden and deepen capital markets.

Bring technological transformation with providing quality services.

Reduce the opportunity for corruption, by reducing the number of state owned banks

Improved the performances of bank in terms of increasing efficiency levels of banks.

In past scenario, there are five Banks get privatized in Pakistan in which one bank faced failure

or bank corrupt after privatization in 1996. The existing situation of banking sector is remained

ruled by as one public bank, few provincial government banks, whereas one bank get fully

privatized bank .i.e. MCB, 3 partially-privatized Banks & one bank get failure after its

privatization in Pakistan, regardless of ongoing privatization of other private sectors. The

banking sector commenced the bank’s privatization in the beginning of early 1990s decade. All

of these banks, have been facing lots of structural problems and other issues like employing

burden of extra workforce, running branches at losses, unable to satisfy the customer from its

services quickly, and even facing difficulty in case of shortages of funds in branches.

In order to overcome the deficiencies of government banks or provincial government banks

required to bring improvement in services and performances through strengthening financial

base of organization and that only possible through the process of privatization or restructuring

in the related sector. It has been observed from last twenty years that during the privatization

process; the top management required to pay attention towards the restructuring part of the

institutions i.e. they require to give explanation for whatever they took decision related to staff

keeping or firing, closing down the branches, in case of Net profit loss situation to assure the

transparency that the whole process of privatization followed as per the privatization commission

ordinance from beginning till end.

In year, 1996; there were third privatization took place of bank i.e. Bankers Equity Limited

(BEL). The Bankers Equity Ltd (BEL) was closed down after its privatization due to reason of

cheating by the party to whom it was purchased BEL. That how one financial unit closed down

due to privatization act and it would be shocked for financial markets in terms of negative

results. In past, the government interested to sell out UBL shares up to 51% ownership in

common public and that is a reason that the UBL privatization took place in June 2002 through

selling its 51% stock. By the same time, the PC (privatization commission) was further interested

to sale out 26% shares of HBL & 10% shares of National Bank of Pakistan (NBL) through

inviting investors in terms of document of interest or expression of interest (EOI).

In past, as per banking professionals lots of rumors spread about the transparency in privatization

process of United Bank Ltd. In order to response these situation and resolving doubts about

UBL transparency in privatization process, the government of Pakistan took immediate step by

announcing the name of lucky bidders i.e. MCB group, group of Bestway Holding Ltd of UK

and group of Abu Dhabi in order to maintain the trustworthiness among the privatization

commission, shareholders, and bankers. Out of which MCB gave the highest bid i.e. Rs. 8.5 bn

and the remaining two groups had given bids around of rupees 4.8 & 4.5 bn. In case of such

privatization, the central bank puts condition on MCB that not to use depositor’s money for

acquisition of UBL.

In context of UBL privatization, each bidder were quite compatible and interested to acquire

UBL with holding maximum number of shares but it was only possible through highest bid by

any one bidder. However, few experts believed that the central bank will allow MCB to use

depositor’s money to that extent of shortages because MCB won’t let that opportunity to lose i.e.

51% ownership of United bank Ltd. In case of shortages, if MCB still interested to acquire UBL

through borrowing from wherever utilizing possible sources then it might have to face severe

burden and loss in terms of bearing extra cost. All of above mentioned ground realities, this

study are evaluating the financial performances of privatized banks in both case of pre and post

privatization.

1.2. Contextual Frame Work:

This research study is conducted to evaluate the “Impact of Privatization and Restructuring on

Performances of Banks and its Employees”. The performances of banks can effect through the

change in ownership structures of bank and through the reforms have been taken place in the

financial development system. The performances of bank can be measured through many

variables like profitability, risk bearing behavior, credit risk exposure, capital adequacy and

many more. The effect of post privatization resulted in the financial development of banking

system and improved performances of banks with respect to its past performances as of

government state owned banks, even in developing countries and in transition economies too.

This study is solely based on the frame of Pakistani context that how the privatization and

restructuring affects the performances of banks and working practices of their employees after

the privatization phenomena. The first privatization bank was MCB and its privatization held in

April 1991 it transformed from the state owned government bank in to as privatized banks by

purchasing 75% share of the MCB bank, but still the government has few shares in this

privatized banks. After 2002, in Pakistan, many banks get private within 5 years period from

2002 to 2007, and few state owned banks transformed in to privatized banks, and other weak

private banks have been acquired through process of merger and acquisition of foreign banks.

There are four government banks have been privatized in history of Pakistan, named as, MCB,

ABL, UBL and HBL in different time period, and after that the privatization of bank get stopped.

In 1993; Allied Bank Ltd, and in December, 2002; United Bank Ltd also get partially privatized.

The privatization has effect positively on the growth of banking sector, and many banks get

progressed successfully during the period of 5 years, 2003 to 2007. In Pakistan, as a developing

country, the effect of privatization has brought many changes in the ownership structure of

banks, raising level of competition, technological advancement, and changed in banking

practices and working environment by having perception that customer is their first priority.

1.3. Problem Identification:

From last twenty years, there were observed changes in the ownership of banks, transferred from

state ownership to privatized commercial banks across the different countries because the

performances of privatized banks are found more efficient as compare to performances of

Government owned banks [Narjess Boukbakri (2005)]. On the other hand, few banks of

developing and transitional economies showed significant impact of privatization for the short

time period, but it also observed that the performances of privatized banks get decline after two

to three years time period and they couldn’t sustain its level of performances [Shirley M.M.

(2005)]

In case of Pakistan, there are only four numbers of government banks get privatized and

afterwards the phenomena of privatization get stopped. So why do the banks privatizations get

stopped in the Pakistan. Have the banks not improved their performances after the privatization

or there could be lots of other factors involved like labor issues, employee resistance, & political

issues that measure the effect of privatization on bank. But this study is entirely focused on the

former aspect i.e. the effect of bank privatization is evaluated on the basis of pure performance

and investigating that does the privatization have significant impact on performances of bank in

Pakistan.

1.3.1. Research Questions:

Does the privatization improve the financial performances of Pakistani banks?

1.4. Purpose of the study:

The reason of study is to assess the performance of privatized banks that did they make

improvement after the privatization if its so then how they have made progress and brought

significant changes as compare to before privatization period in the context of Pakistan.

1.5. Significance of the study:

This study is essential as it helps to quantify the impact of privatization on the bank

performances in the frame of Pakistan. The finding of this research study would help to analyze

the impact of before and after performances of privatized banks, and evaluate that what changes

have been taken place after the privatization, in order to know that the process of privatization

not only improve the performances of bank but it also encourage the transforms in banking

sector.

In order to compare the situation and performances of weak government banks with respect to

performances of privatized bank, this study will be an ideal one in current and future scenario.

This study will help the Privatized banks to know which performances measures are important to

evaluate the effect of privatization and it also let you know which performances measures have

significant impact of privatization and which haven’t.

1.6. Scope:

This research study will further provided scope for two researcher point of view that is one for

existing researcher and other for new researcher. In case of exiting researcher point of view, it

provides option to evaluate the privatized banks performances against the performances of

government banks, secondly there were found an opportunity for new researcher incase of

comparing the privatized banks performances with respect to the performances of domestic

(private), and international (foreign) banks in current & future scenario of Pakistan to know that

are the privatized banks proficient a lot or not, if it is so then to what extent they are capable with

respect to private and foreign banks ownership in Pakistan.

1.7. Limitation:

In case of Pakistan, there are limited number of privatization took place in history, so there is

chances of limitation of data constraint because the bank get privatized in Pakistan in different

years. That’s how, I found difficulty in collecting quarterly data related to these four privatized

banks named as MCB, ABL, HBL and UBL, due to this reason, I have gathered twenty five

years annual data of financial statement of these four privatized banks. Meanwhile, in this

research study, I have faced constraint in collecting the data regarding my variables. Lastly, I

have faced constraint in getting access on the research paper of past researchers.

1.8. Delimitation:

This research study is intended to focus on the evaluation of before and after performances of

privatized banks in the frame reference of Pakistan. Whereas this research study is solely focused

and fits on working practices of banking sector.

1.9. Justification:

The reason of examining the effect of bank privatization with performances is only to know that

does the privatization of banks brought many positive changes through transformation and

improving its performances in the banking industry in case of developing and transitional

economies in the short term or long term too.

The reason of examining the effect of bank privatization on its performances in the frame of

Pakistani context to only know that how much the process of privatization of government banks

remained successful after the post performance point of view, if it is so, then should we need

more (further) to privatize the weak government banks in order to improve the performances and

practices of banks in Pakistan in case of recession period.

Chapter 2

Literature Review

2.1. Literature:

Nakane I.M. (2004) reported that Banks productivity is affected over the last decade in Brazil

severely, in order to cope up with these problems, many government banks in Brazil transformed

and get privatized through restructuring of government banking institution, amalgamation and

acquirement process under the ownership of international banks (foreign banks) in Brazil. The

review article disclosed that banking productivity is lesser in case of presence of government

state owned banks as compare to privatized and foreign banks. The past researches evaluates that

how to measure the impact of these changes on productivity level of banks.

There were included few macroeconomic factors that is considered base for such rapid

transformations in Brazil banking industry i.e. technological revolution, globalization trends of

capital markets, and improving financial resources through privatization of government owned

banks. As a result, 14 out of 32 government banks in Brazil get privatized during the period of

1994 to 2002, even 14 governments are actively operating in Brazil, and those government banks

that are lacking in productivity; get closed down. The review of research article discloses that

Brazilian states kept some control over the banks after restructuring, and some of banks get

straight privatized, some of them first transferred from state to federal government and then

privatized, and few of them are liquidated due to poor performances.

According to past literature, it evaluates the impact of government state owned banks due to

privatization, where as privatization shows the significant results in enhancing the productivity

of Brazil banking institution. Whereas total productivity of Brazilians banking institution are

measured through estimate of production function, and for that purpose they have used the

methodology which is suggested by one of renowned past researcher to evaluate the productivity

of banks. Total factor productivity of Brazil banks is changed due to many types of variables

related to changes in corporate control, although they should try to control such corporate

changes. Whereas the change in the ownership of government banks have been taken place in

Brazil through privatization along with the effect of corporate change as in the shape of merger

and acquisition of domestic banks, acquisition of foreign banks, and liquidation of banks due to

bad performances.

These articles include variables to control the effect of static, selection and dynamic on total

factor productivity of banks. Static variables are dummies for group of banks which don’t get

affect due to corporate change throughout the sample period; whereas selection variables are

dummies for those groups of banks which have impact of change in corporate control only to one

over the whole sample period. Although, dynamic variables are having two forms i.e., one

dummies for those banks that have impact of corporate change to only one over the sample

period. The second form of dynamic variable is one dummy for those banks that track the time

period for such change. Even the some of dummies variable are for those banks that have

included changed due to either liquidation or get exit of such banks from the banking industry.

Therefore the privatization of state owned banks are considered more valuable for total

productivity of banks instead of reformation of state owned banking institution. This reviewed

article is based on to evaluate the bank productivity in the banking industry. The variation in

productivity is referred to as variation in output rather than variation in input which include

variation in efficiency and technology.

Whereas the methodology is followed by the approach of Olley and Pakes (1996) i.e. to estimate

the parameter of production function, although it has two available sources of bias i.e. sample

selection and simultaneity bias. The sample selection bias referred to many banks that left the

market during the sample period where as it causes sample selection problem due to correlation

relationship exist between the unobservable productivity and the decision to leave the market.

Whereas simultaneity selection refers to correlation relationship exist between the unobservable

productivity variable and amount of inputs chosen by the bank.

In 1990s, the Brazilian banking industry suffers problem of inflationary control, in order to cope

with these problems, change occurred in the form of joining and acquisition of domestic and

international banking institution, privatization of government banking institution, & closed

down the banks whose performances is inefficient or say that affect the level of productivity of

banks in long term. Whereas reviewed article indicates some of control variables that affect the

level of productivity and proved that the state owned government banks seem poor in

productivity than privatized and foreign banks.

Bitzenis A. (2008) reported that the objective of review article is to evaluate that how the

reforms have been take place in banking industry of Serbia and to see its positive outcomes after

creating reliable and sound banking system. Even it could be referred as in improving the

banking performances of other developing countries. The review article revealed that these

ongoing reforms affects that how prior performances of Serbia banking are different from the

performances of post-reforms, and there are many other factors that are relevant to know that

how the ongoing reforms resolve the problem and challenges faced by the Serbia banking, and

how the improved banking supervision transformed the banking sector of Serbia for their present

and future potential customer.

Serbia banking industry is facing from severe decline in the form of mismanagement, corruption,

and complex problems during the period of 1980s to 2000s, actually it was such transition period

in which Serbia banking industry are lag behind even the performances of advanced transition

economies and they are facing from multiple conflict issues during the prior transition and post

transition period. In early 2000, the Serbian government officials decided goal to bring Serbian

banking industry on the right track through developing efficient policies for implementing these

ongoing reforms.

Reforms in banking industry have been taken place across the different countries on different

basis like Poland makes a great change in banking industry after such reforms through rapid

privatization. The review article disclosed that two approaches of reforms implemented; firstly

adopted by most of the Central and East European (CEE) countries focused on rehabilitation

approaches to bring the such reforms through the concept of decentralization of mono-banks into

large number of commercial , state owned banks, recapitalization of state banks, and the

privatization of the state owned banks. Whereas the second one, is the Former Soviet Union

Republics (FSU) who bring reforms by adopting new entry approach in the form of

decentralization of mono system banks in to specialized commercial banks, like liberalization in

terms of new entry of banks, and privatization of state banks.

This research article shows experience of three stages in case in which those who are belongs to

CEE countries, are more having skills and knowledge of how to operate the banking institution

than the countries who are following the approach of FSU countries. Those countries were

following different strategies in both case of approaches like countries who are following CEE

approaches tend to puts restriction in entry barriers to having limited competition, while the

countries who are following the approach of FSU, are focusing on more towards on liberalization

philosophy, as a result there are more small number of uncapitalized banks can be seen.

Whereas the Countries who are following CEE approaches successfully coped with problem of

nonperforming loans through comprehensive and operational restructuring of state banks. On the

other hand, FSU let ignored the issue of nonperforming loans. CEE and FSU are following

different strategies related to privatization aspect, in which CEE countries are getting slowly

privatized their banking institution because of restructuring of nonperforming loans issue. On the

other hand FSU countries are more down towards the rapid privatization.

Such reform in Serbian banking industry is to design and implement the proper framework for

monitoring and supervision of many banks so that transform whole banking sector to overcome

its prior failure practices. The failure in banking practices can be because of number of reasons

i.e., lacking trust or confidence in their banking practices so these reforms have changed the

concept of their customers and finally improved the performances of banks. By applying these

reforms in banking industry of Serbia country, they had come to know many issues regarding the

change in consumer behavior, liquidity issue, regulation framework, and technical problems that

will further help its banking industry to groom in right direction with right banking practices.

Megginson L. W. (2005) reported that privatization of state owned has been taken place in many

countries because the performance of privatized banks is better than the performances of

government state owned banks. As a result, over 15 years time period, there are number of banks

get privatized in order to improved their banking efficiency levels and it has positive impact on

employees as well. This research article disclosed that what are the reasons that require bank to

get privatize or sale of their government state owned banks (SOBs), what are its impact on

society of developing countries, and even transition economies.

The past researcher also revealed that impact of foreign ownership on efficiency of banks.

Regardless of the commercial bank location, organized, and the ownership structure of banks,

banks generally perform three basic functions, firstly maintain the payment system, secondly

they transform claims issued by borrowers into other context of claims that hold by depositors,

creditors and owners. Thirdly, conventional bank is commonly involved in monitoring the

performances, efficacy of banks & credit granting issue, maintaining safety, and transparency in

the banking practices and even the practices of state & commercial bank varied across the

countries.

Over the last two decades, we have seen changes in the ownership of banks, transferred from

state ownership to privatized commercial banks across the different countries, due to number of

reasons, like the SOBs aren’t working as per planned and even, it lacks in development of

updated financial system. The research article shows that state owned bank are weak in its

performances comparatively to privatized banks because of its state owner managers, are having

less incentives and opportunities than managers of private owned firms, as a result they lack in

monitoring the activities, and generating the less revenues for the firm. One of reason of its

inefficient performances are because government owned bank lacks or keep leniency in

monitoring their activities as compare to privatized banks, whereas they keep strictly check and

balances.

This article disclosed that the government or stated owned banks unable to build the financial

development system, lacks in growth of banks, and effects productivity as well. The past

researcher revealed that they evaluated the performances of bank on the basis collected data,

consisting of six transitional economies related to the ownership of state owned banks, private

and foreign owned banks including named as Poland, Romania, and Hungary etc.

Where as they used measure of performances of banks with respect to each ownership structure

in terms of profitability ratios that is ROA (return on asset) & ROE (return on equity). This

review of research article shows that privatized, private and foreign ownership structure of banks

are more reliable than government state owned banks according to the performances and

profitability point of view, and even majority of private banks are turned into strategically

foreign structure of banks out of these transitional economies.

Narjess Boubakri (2005) determined that the effects of post privatization is significant on

performances of bank. Those banks tend to move towards privatizations which have lower

economic efficiency and solvency problems under the supervision of government ownership of

banks. The result of post privatization is to achieve the improvement in terms of efficiency, and

profitability through enhancing credit risk exposure, and making condition better for

capitalization. This was experienced that privatized banks performances will definitely achieve

the gains in efficiency and profitability in terms of increasing return on assets and return on

equities. That’s how the privatization has been taken place in many countries including

developed, developing countries and transition economies but the way the banks or firms gets

privatized are pursued different practice in different countries.

When we talk about the privatization of banks then we should take it as financial liberalization of

whole financial sector because its process and procedures are too large and complex in

developing countries, even liberalization help to improve reliability of banking contract, credit

risk exposure, growth opportunities, and performances of bank. There are also rare chances that

the privatization of firms become remains unsuccessful but any how there are some determinants

of privatization which makes it either successful or reason of failure i.e., how efficiently set up

supervisory board, and the way it managed the banking procedures and the change in corporate

governance of banks in terms of ownership structure and contribution of foreign banks.

Banks also play important role in the progress of an economy and financial need of the different

sectors so ownership structure of banks and institutional role are considered key variable in

growth of overall economy. Privatization tends to contribute even in restructuring of newly

privatized firms or banks that shows how the design of privatization is considered the important.

Whereas issue of ownership and corporate governance are considered important in process of

privatization, because it matters for improving the performances of banks that how privatization

is going on either through the foreign investor or through the local investor.

Whereas different researcher highlighted that privatization is being favorably done in transition

economies mostly through the foreign banks (foreign investor) and it is proved through data that

more half of the investment are done through foreign banks in case of privatization of

government state owned banks in transition economies. Whereas privatization of banks are being

done in developing countries in very slow pace through the local investors (Industrial groups)

and foreign investors as well. The reviewed research article includes only the effect of

privatization (choice of ownership structure and corporate governance) on performances of

newly privatized banks in developing countries and excluding the impact of post privatization

over performances of banking institution in case of transition economies.

According to this article, it disclosed that they pursue two goals i.e., firstly to evaluate that

whether the privatization has impact on performances and risk taking behavior of bank or not in

comparison of government state owned banks. Secondly, the effect of post privatization

ownership structure is related to the leading owner (foreign investor, industrial group, or the

state). It also disclosed that they have used four variables regarding performances of bank in

terms of profitability i.e. return on equity, efficiency in terms of net interest margin, credit risk

exposure and the capital adequacy. For variables related to the ownership structure of banks are

categorized into four aspect of stakeholders i.e. government ownership, foreign investor,

industrial groups and individuals investor.

For knowing the impact of privatization and ownership structure on performances of bank, they

have used commonly univariate tests and panel data estimation techniques consisting of 3 years

sample data before the privatization, and 3 years data after the effect of post privatization. The

past researcher revealed the findings as the privatization had significant effect on performances

of banks including efficiency in terms of profitability, and credit risk exposure and capital

adequacy variables.

Shirley M.M. et al (2005) reported that there is significant evidence available about the

successful results of non financial institution after the privatization but there are limited evidence

are available that shows how the privatization impact on the performances of banks and

improved it efficiency levels. It further disclosed that the privatization of financial institution like

banks improved their performances and efficiency in more better way when the government state

owned bank completely transformed as privatized bank means Government doesn’t have any

share in that privatized bank. Performances of bank after privatization can be produced better

results when the government doesn’t restrict competition, and when the foreign banks are

interested in investing in the privatization process of banks.

According to the findings of past literatures, revealed that privatization of state owned banks

improved their performances and efficiencies of banks, for that purpose they have gathered the

data of privatization consisting of 5 separate countries including Pakistan, Mexico, Argentina,

Nigeria, and Brazil, while other 11 countries from the two regions i.e. Eastern European;

Bulgaria, the Czech Republic, Croatia, Hungary, Poland and Romania, and the second region

from Asia including; Malaysia, and others.

So the reason of choosing these countries is only for evaluating that how does the bank

denationalization (privatization) affects performances of bank as in above mentioned regions

because there are lots of government banking institution which either transformed into partially

or as fully privatized banks and even few privatized strategically through foreign investor during

the denationalization period and at the same time; encouraging competition level through

reducing restrictions under the supervision of state. It also revealed that there are still major stake

of state owned enterprises in developing countries which affects the performances and

efficiencies in terms of less profitability.

There are number of reasons that government owned banks and institutions are weaker in its

performances than the performances of Privatized, & private banks because government banks

decisions are politically influenced for the sake of so called politicians benefits, even the

government banks are excessively hired the employees which creates extra burden on growth of

government institutions or banks. The government state owned banks are lacking in competition

with the private banks in these competitive market due to political interest that affects its

performances. In order to reduce the need of subsidized, the politicians try to protect the

government institutions from the competition, and for that purpose they impose restriction on

entry to do trade, as a result it affect efficiencies of institution. In comparison of state owned

banks, the privatized banks are able to improve their performances through limiting the

interventions of government.

Although some performances measures of banks improved in most of the mentioned countries

but not necessary to improved all performances measures in every developing countries, consider

the case of Argentina, their performances measures in terms of profitability has increased as the

time lapses but the cost efficiency doesn’t show significant increased due to having restriction in

case of firing and closing the branch, and so the new owner is unable to lower down the cost. In

short privatization improves the performances of banks but it will have negative in few cases,

like partial ownership of banks reduces the level of efficiency and put some restrictions

altogether.

Although the preventing the entry of foreign investors in the process of privatization, will lost the

opportunity to get flourish by the financial development system. Whereas the competition is the

source to increased their banking practices and performances but on the other hand, oligopolistic

banking reduces the efficiency and resulted as poor outcomes in financial system. We have

found that profitability, in terms of ROA (return on asset) and ROE (return on equity),

considered the best measure to evaluate and forecast the performances of banks in present and

upcoming scenario.

Burki A.A. (2006) reported that financial reforms and liberalization have been taken place in

many developing and transition countries like Pakistan during the 1990s and found that the

private (PRIV) and foreign banks had started freely to compete with state owned banks. They

disclosed that the performances of state owned banks are far behind in terms of efficiency than

performances of international and PRIV ownership banks, and even dominance of government

ownership banking institution in any economy tends to decline in GDP growth & unable to use

efficiently the banks resources comparatively to PRIV and international banking institution. Such

transformations brought improvement in banking industry’s practices in Pakistan by improving

the stringent prudential rules and regulation.

According to the research articles, the past research is conducted to evaluate the index of

banking efficiency by taking data sample of 42 commercial banks comprises of government

banking institutions, PRIV (private), & international banks from period 1990 to 2000. They used

measure as data envelopment analyses to evaluate the efficiency indexes of each bank, for that

purpose they further split the data in to three categories i.e. related to pre-reforms period (1990-

1992), the first reforms period from 1993 to 1996, and the second reforms period from 1997 to

2000. In case of first reforms, state owned banks, private and foreign banks tried to enhance the

competition level, but unable to transform the cost inefficient banks in to efficient banks.

But as the period lapses, the efficiency gained by the PRIV and international banking institution

is much higher than the government ownership banking institution across the countries. The past

researcher discovered an association exists among bank sizes, number of branches, asset quality,

and non-performing loans with index of banking efficiency.

The banking situation of Pakistan is not so flexible during the period of nationalization from

1972 to-1990 and there were 5 nationalized banks in past. But from the period 1991, the process

of liberalization in banking sector and insurance sector were taking place, the initial changes

were taken place during the phase of first reform, in the second half of the year, 1992; there were

seen new entry of ten PRIV (private) banking institution, & three international banking

institutions. Whereas government banks of Pakistan like MCB and Allied Bank Ltd got

privatized in 1993, which actually play the vital role in case of reforms and progress of overall

banking sector. After that the Banking Council of Pakistan was dissolved during year, 1997.

Afterwards; SBP (State Bank of Pakistan) was remained as the supreme banking authority for

every commercial banks.

As a result, they strengthen the prudential regulation and bring many changes in the structure

ownership of banks through the source of privatization, restructuring of state owned banks, and

transform the banks under the umbrella of private and foreign banks in order to improve the

efficiency level of banks. The variables used for evaluating the banking efficiency based on the

data of aggregation of asset, liabilities, revenues, costs, and lacking number of bank employees,

consisting of complete data related to 21 conventional banks throughout the years from 1991 to

2000.

Iimi A. (2004) reported that banking sector development pursuing an indispensible progress in

economic development that’s how the homogeneous role of banking limited the growth of an

economy, whereas the past researcher wanted to examine that how to increase the banking

efficiency by means of operational specialization and diversification and size expansion of

banks. They disclosed that state owned banks are large in size but less efficient in performances,

while the other financial institution, and private banks are able to avail cost saving advantages

and increased bank profits that’s how the efficiency of privatized banks are better than stated

owned banks under the ownership of foreign and private banks.

Banking sector play a vital role in developing economies through examining the patterns of

credit allocation by the banks. Hence, bank based system are considered more viable for

increasing the economic growth at an early stage than following market oriented financial

system. Whereas the first reforms have been started in Pakistani banking industry from 1980s to

1990s, in which the primary objective to make easy the entry of newly private and foreign banks,

where as in the second reforms, the key objective to transform the partially privatized banks into

fully private banks, (e.g. MCB and ABL Ltd), and to give full autonomy to state bank, and

improve prudential regulation and auditing standards of banks. According to state bank report,

they identify several financial indicators for evaluating banking efficiency and disclosed that

banking reforms have the positive impact on increased asset and deposit mobilization.

According to this article, that researcher had used two econometric model for estimating the cost

function as stochastic frontier analysis (SFA), and seemingly unrelated regression model (SUR).

For that purpose they have taken the data consisting of 41 financial institutions operating in

Pakistan i.e. NCBs, PCBs, PBs, SBs, DFIs, Prov, and FBs during the period of 1998- to 2001.

They also disclosed that the banking efficiency is evaluated on developed countries that how the

95% literature related to measuring bank efficiency is from the developed countries like most of

the US Banks.

According to past research findings include that the firstly non-performing loans put excessive

burden on the costs of banking institution, Secondly banking industry enjoyed large economies

of scale with low economies of scope, whereas scale economies have inverse relation with bank

size, as the bank size increases the bank will suffer from scale diseconomies. On other hand

scope economies have positive impact on small and medium enterprises, where as the large

institutions including banking intuitions suffered from scope diseconomies that’s how the small

enterprises have more opportunity to have cost saving advantages through operational expansion

and diversification. Whereas, at overall level, the private banks and foreign banks are operate in

larger economies of scale with low scope economies that how it has more opportunity to do cost

reduction per unit size expansion through operational diversification.

Thirdly from efficiency point of view, the privatized commercial banks (PCBs), Private banks

(PBs), Foreign banks (FBs), and provincial banks (PROV) are having high efficiency levels, than

the state owned banks, Specialized banks (SP), and Development financial institutions (DFIs)

which are suffering from X-inefficiency levels and that is a reason, the state owned are suffering

from losses but still continue to operate for the sake of political interest. In short the banking

sector should be liberalized, and deregulated to achieve the levels of economic efficiency.

Daniel C. Hardy et al (2005) reported that the Pakistani banking sector started flourishing over

the period of past fifteen years ago by means of privatization of government banks, stringent

policy of prudential regulation, via new entrance of other domestic private banking institution

and foreign banks. These reforms kept considerable importance in case of measuring bank

productivity and effectiveness in terms of increased profits. The past researcher disclosed that

privatized banks enjoyed increased profits after the immediate privatization by focusing on

element of efficiency with respect to performances of state owned banks. The new entrants like

private and foreign banks outperformed and earned high productivity in terms of rising profits

level.

According the past researchers, these reforms have significant effect on performances of

commercial banks so that can be measured through microeconomic level data which is

considered valuable in terms of assessing the effect of transformations over the level of

efficiency, prices, incomes, & productivity of banking institutions across the country. This was

realized that changes in performances regarding individual banks or any institutions resulted in

the change in its ownership and governance. Whereas the many econometric models used for

evaluating the efficiency and productivity of banks by the past researchers but most of them are

focused on the developed countries because the microeconomic level data isn’t easily available

in developing countries.

It is proved that the dominance of State owned banks in any country lead to decline in the growth

of an economy where as denationalized banking institution, other domestic banks (private

banks), and international banks have superior performances than government banking institution.

Sometimes the weak denationalized banks (privatized banks) by the foreign banks due to

considered more reliable in performances and productivity so expansion or subsidiaries of

foreign banks may have significant impact on banking system.

For evaluating the effects of pre and post reforms on financial performances and efficiency of

banks, they have conducted two separate analyses, first analyses is concerned to effect of

transformations in AC (average cost) & banks profit. For measuring such changes on AC

(average cost) and profits of bank are associated to changes in productivity and changes in

business condition through best practices and efficiency levels of banks. In second analyses, they

measured the efficiency of individual banks basis on individual scores and then compare their

performances of individual banks across the each bank type including state owned banks,

privatized banks, private banks, and foreign banks. It is also cleared through results that

privatized banks improved its performances after the reforms comparatively to performances of

state owned banks.

The past researcher has taken the sample date during the reforms period of 1981 to 2002. They

have used model Least Absolute deviation (LAD) as an estimator along with OLS and GLS

technique to measure the efficiency in terms of cost and profit function accordingly. To assess

post and prior effect of reforms, the profits and cost function are measured through evaluating

the variation in the variables in terms of change in productivity and business conditions.

In case of first reforms period (1991-1992), there were seen moderate profit due to increase in

productivity profits which have significant effect overall even than the negative changes

occurring in the business conditions. During second reforms period, there were booked losses

and dispersed profits of banks across the each type of banks. But after the second reforms period

(1993 to 1998), there were seen less increase in profits level comparatively to more increased

intense business conditions exist in the banking sector.

Robert Cull et al. (2005) reported that the privatization have significant effect on the

performances of nine Nigerian banks over the period of 1990s to 2001. In many countries, the

privatization has significant effect over performances of bank but those countries in which the

government wouldn’t encourage the foreign ownership, and partially retain the maximum shares

in the ownership of privatized banks would limit the growth of such banks. Whereas the

developing countries are poor in performances because of large number of government banks, so

the privatization played important role in boosting the efficiency of financial intermediation in

such economies.

The privatization of 14 banks have been taken place in Nigeria at fast pace during late 1990s, but

on the other side, there was financial crisis across the globe, so Nigerian economy decided to

measure the performances of privatized banks based on pre and post effect of privatization &

comparison of privatized banks performances with respect to the performances of other domestic

private banking institution in the Nigerian banking industry. These researcher measured

performances of privatized banks on the basis of ROA (return on asset), ROE (return on equity),

NPL (NON performing loans), & NIM (Net interest Margin). They disclosed that there was gap

exist if observe the bank performances before privatization but when the privatization took place,

it will fill out the deficiencies through privatization, but before the privatization particular bank

lacks in performances comparatively to other private owned commercial banks.

They have taken the data sample of nine privatized banks along with two state owned banks to

measure the performances of bank after the privatization and the data of 24 merchant state

commercial banks to compare with the performances of privatized banks. For these sample data

they have complete information with all respect, so they measure the performances of bank on

the basis of three variables i.e., ROA, ROE and NPL because not all variables are available to

analyze the performances for every bank. Whereas the privatized banks have significant impact

on ROE regression but it lacks in significance of ROA regression along with significant decrease

in NPL. Whereas the only difference is the significance level on ROA among the performances

of privatized and Merchant State owned banks. It is true that the privatization is taken place of

weaker institutions so that it can improve performances of such bank in terms of increasing the

significance level in ROE and ROA and decline in significance level of NPL.

Omran M. (2007) reported that there were seen privatizations of 12 banks in the Egyptian

banking sector during the period of 1996-1999 from the state ownership to privatized banks.

Omran disclosed that the privatization has different result on different economy and during

analyses, they observe decline in profitability and liquidity ratios but other measures do not

change with the effect of privatization. He disclosed that the performances of privatized bank is

better than the ownership of state owned banks, but the performances of privatized banks are

weaker than the other forms of private, mixed private owned and foreign owned banks.

In Egypt, banking sector is considered the backbone of the financial sector because it possess

largest share of 50% of the asset, but according to past researcher, they had limited the scope of

investigating the effect of privatization on the performances of bank, for that purpose they firstly

wanted to examine that how the pre-post privatization have affect on performances of bank,

secondly they wanted to examine the changes which occur due to the effect of privatization and

then evaluate the such changes in comparison with performances of private banks, state owned

banks, major partial ownership of government owned banks and major partial ownership of

privatized banks. Even they explore the post privatization effects on performances of bank.

The past researcher disclosed that the previous researcher utilized sample data consisting of 12

Egyptian banking institution based on years from 1996-1999, the result of their outcomes show

that the post-privatization decrease in profitability and liquidity ratios but there was observed

insignificant changes in other measures including loan quality (asset quality), capital risk

indicators, operating risk efficiency, and asset growth. Whereas its result shows that those banks

which have large share of private ownership, are better in productivity and banking efficiency

than those banks, which are having major ownership of government owned banks and fully state

owned banks.

The past researcher wanted to examine that the privatization should have significant effect on the

performances of privatized bank, and considered the control transfer the ownership of public to

private ownership lead positive result in terms of profitability because the private management

has major concern on profitability as compare to state owned banks. Whereas, they have used

many variables like ROA (Return on asset), ROE (Return on equity), and NIM (Net interest

margin) for evaluating the impact of before & after denationalization (privatization) incase of

performances of privatized banks. Whereas ROA in case of privatized banks (Mean and median)

is 0.014 and comparatively ROA is lesser in case of Government owned banks (Mean and

median) i.e. 0.008. Similarly, ROE in case of Privatized banks (Mean and median) is 0.164 and

comparatively ROE is lesser in case of Government owned banks (Mean and median) i.e. 0.060.

In short, profitability indicators (ROA and ROE) shows significant increased in performance of

bank after the post privatization.

Hasan I. et al (2005) reported that privatization matters in case of efficiency and performances

point of view because government owned banks are least efficient as compare to performances

and ownership structure of foreign owned banks. Whereas foreign owned banks are the most

efficient banks, so if the privatization process took place through foreign ownership of banks, it

would have significant affect in performances of privatized banks. That’s how the early

privatized banks are more better in performances point of view than those banks which get

privatized later because in past. In 1990s, the financial reforms and bank privatization have been

taken place in these transitional economies so they wanted to evaluate that whether the bank

privatization has affect on performances of bank.

Foreign ownership of bank play vital role in the growth of banking sector, it is possible through

participation of foreign owned banks in the privatization process of domestic state owned banks.

Foreign owned banks improved the banking sector performances by raising the competition bar

among the each type of ownership of banks. They also disclosed that the foreign banks perform

better in developing countries than their domestic owned banks, that’s how the foreign banks

performances is associated with the improved banking efficiency because they are surveying

their customers at cost efficient basis but less profit efficient basis immediately after the

privatization.

On the other side, the performance of domestic (private) banks is considered more efficient than

the performances of government owned banking institution. Even the performance of privatized

banks is more profit motivated because of change in objectives. With respect to issue of bank

ownership, privatized, private and international banks are having enough proficiency in

performances with respect to the performances of government banking institution. Whereas they

have used the sample data of six advances transitional economies named as Bulgaria, the Czech

Republic, Croatia, Hungary, Poland, and Romania for analyzing the effect of privatization on

performances of bank. They have restricted in selecting the banks having large asset size

consisting of these 6 Advanced TEs because of homogeneity is important for evaluating the

affect of privatization on basis of individual banks.

They have used performances measures i.e. return on asset, net interest margin and equity ratio

and few more variables and summarize that ROA (return on asset) of government owned banks

is less significant than the performances measured of privatized banks in terms of ROA ratio, but

ROA measured of privatized banks is sometimes less significant than the performances measured

of foreign owned banks in terms of ROA ratio. Even ROA is 0.0224 in case of foreign owned

banks, ROA is 0.0176 in case of Privatized banks, and ROA is 0.0042 in case of Government

state owned banks. Whereas the net interest margin is highly significant in privatized banks than

in de novo private banks, but NIM is not increased significantly in state owned or foreign owned

banks after the privatization.

In short privatization matters for improving banking efficiency levels of government owned

banks because the performances of privatized is better than the performances of Government

owned banks, but the performances of international (foreign owned banks) banking institution is

considered more superior with respect to the performances of privatized banks so the

privatization which is taken through foreign ownership is considered more efficient than under

other bank ownership.

Chapter 3

Methodology

3.1. Data & Methodology:

3.1.1. Introduction:

The purpose of this chapter is to review and make an understanding regarding different

methodology and its research approaches and research design. For application of my research

study, I have used selected research approach and design as per the requirement to conduct the

study the effects of bank privatization on its bank performances in the context of Pakistan. For

investigating the outcome of bank privatization on its performances in the Pakistan that require

first to know that does the privatization have significant impact on its performances of bank &

secondly does the bank able to sustain and improve its performances after the post-privatization.

After reviewing the literature of past researchers, and through analysis of past secondary data of

denationalized banks (privatized banks) in terms of profitability ratios; I come to know that the

performances of government banks may influenced after the privatization in developing

countries, and transitional economies but it is observed that the improvement in performances of

privatized banks would only sustainable for shorter time period.

3.1.2. Objective:

The objective of this study is to examine the effect of bank privatization towards financial

performances of bank in the Pakistan. Through my study, I wanted to know that why does the

bank privatization get stopped in Pakistan. Does the privatization have significant effect on its

performances of privatized banks. Couldn’t the privatized bank able to bring improvement &

sustain its performances of banking operation in Pakistan.

3.2. Research Approach:

3.2.1. Quantitative Approach:

This research study is focused on the quantitative approach because it is such type of approach in

which the researcher required to quantify their study through asking selective or narrow

questions (closed end questions), collecting such data which could be either easily available from

participants (in case of primary data) or quantifiable and available through using statistics as

secondary source in a manner that is the data collected remained in unbiased form.

Whereas the quantitative approach illustrates by name that it is based on objective realities. This

approach is considered measurable one in terms of physical quantity and in facts & figures. In

case of primary research, it is moreover required to make close end interviews by making

questionnaires and all that. But commonly I have observed that quantitative approach is purely

focused on analyses of secondary data. In my research study, I want to evaluate the effect of

bank privatization on its performances through analyzing the profitability ratios of four

privatized banks based on past year data in the context of Pakistan.

3.3. Research Design:

This research aim is to investigate a specific problem that needs a solution in systematic and

organized effort. For this purpose, it is very important that the research design should give a

strong base so for conducting this research requires investigating cause and effect relationship

exists between the variables bank privatization and bank performances in comparison to before

and after privatization in terms of profitability ratios and an efficiency ratio in the frame of

Pakistan.

3.3.1. Casual Comparative Research Design:

I have used casual comparative research design to support my study because I require to

investigate the effects and then causes related to variable bank privatization and bank

performances in the frame of Pakistan. Whereas the reason of choosing this design is due to

characteristics of independent variable i.e. bank privatization which can’t be manipulated and

simultaneously require group comparison on dependent variable i.e. bank performances in terms

of profitability ratios and one efficiency ratio.

This study is purely focusing on the causal comparative research design in which measuring the

cause and effect relationship between the two variables bank privatization (independent) & its

bank performances (dependent) variable. Whereas I found that bank privatization as a one

variable and performances of bank as second variable which is further divided into sub-

performances related variables i.e. (ROA) Return on Asset, ROE (Return on Equity), and NIM

(Net Interest Margin). In this research design, I want to evaluate the effect of pre and post

privatization on financial performances of four selected banks in the frame of Pakistan. Whereas

the performances of privatized banks are required to measure in terms of profitability ratios and

one efficiency measure. It is all possible through using Paired Sample T- test technique to

evaluate this cause and effect relationship among variables.

3.4. Data Source:

This research study is focused on Secondary source of data. Analysis apply will require to

investigate the related matters of research, which includes the related data of profitability ratios

comprising of four privatized banks (MCB, ABL, HBL, & UBL) annual reports in different time

period from 1985 to 2009. In fact, all the secondary information would be collected from reliable

sources like

Annual reports of privatized banks1

From State bank website2

From Privatization Commission Pakistan.3

3.5. Selection of sample:

There are four government banks get privatized in Pakistan up till now, so I have chosen all four

privatized banks to conduct this research study. These all banks are belonging to conventional

banking system. Whereas the four privatized banks are named as United Bank Limited, Muslim

Commercial Bank Ltd, Habib Bank Ltd & Allied bank limited. For my research study I have

consider twenty five years of annual data before the privatization & after the privatization of

those banks in order to know that either the bank privatization has significant effect on its

performances or not.

1 www.mcb.com.pk , www.abl.com.pk , www.ubl.com.pk , www.hbl.com

2 www.sbp.org.pk

3 www.privatisation.gov.pk

The sample size of data would be based on eight years comparison of each four mentioned banks

before and after privatization so number of observation is based on number of years taken in

comparison of each bank that’s how the sample data is collected to keep in view the effects of

before and after privatization number of years. It would be 32 number of observation based on

sample years taken in case of combined comparison of four privatized banks.

I required to collect quarterly data of these four privatized banks in order to increase number of

observation or sample size but due to data constraint I couldn’t able to get quarterly data, even it

is not available in State bank library, so I refer to gather then annual data of these four privatized

banks till at least twenty five years annual data in order to analyze the effects of pre and post

privatization on bank performances in the context of Pakistan. Further I required measuring the

performances of privatized banks based on collected data and sample size in terms of

profitability ratios based on collected data of annual reports of these four privatized banks.

Whereas I have gather annual data of four banks i.e. MCB, ABL, UBL, and HBL from year 1985

to 2009.

3.6. Paired sample t test technique:

As far as concerned to my research study, I want to evaluate the Pre & Post effect of bank

privatization on its financial performances for basis on selected sample data & time period.

Whereas, I found Paired sample t-test would be suitable for quantifying the effect of variables to

each other with respect to my research study. For application of multivariate technique, I

required to apply the paired T-Test technique on the basis of collected data which is mentioned

above in detail related to profitability ratios of four privatized banks; named as Muslim

commercial bank ltd (MCB), Allied bank ltd (ABL), Habib bank ltd (HBL) & United bank ltd

(UBL) in the context of Pakistan. Whereas, according to past researcher, the different researcher

may have used descriptive statistics (like they have calculate mean & median of performances

measures i.e. (ROA & ROE) & some other researcher may have used paired T-Test for their

research study.

3.6.1. Research Hypothesis

Hypothesis is based on testable assumption and here its objective to apply the suggested

technique for conducting my research study

Ho: Privatization has insignificant impact on bank performances in Pakistan

H1: Privatization has significant impact on bank performances in Pakistan

3.6.2. Test Hypothesis

Paired Sample T Test:

a) Ho: µD = 0; the null hypothesis states that the performance of bank before privatization is

remained same with the performance of bank after privatization.

b) H1: µD ≥ 0; the alternate hypothesis states that the performance of bank before

privatization improves with the performance of bank after privatization.

3.7. Variables Description:

To examine the effect of privatization on performances of privatized banks, I have taken out

most similar variables from past research articles for conducting this quantitative research study.

Whereas variables of my research study are named as return on equity (ROE), return on asset

(ROA), and net interest margin (NIM) to measure the pre and post effect of bank privatization on

bank performances in the context of Pakistan. Whereas the ‘bank privatization’ is it self

considered as independent variable which is further treated as pre and post effect of privatization.

Secondly the common variable is ‘bank performances’ taken as dependent variable which is

further analyzed in terms of bank profitability and efficiency measures i.e. ROA, ROE, and NIM.

So I first defined that what bank privatization means; the transfer in ownership structure of banks

from government ownership banks to privatized owned bank through either local investor, or

foreign investor. Whereas I found that the bank privatization from foreign banks ownership

would improve the performances in better way than ownership of banks acquired by the local

investor.

Through focusing on my research design and research approach, I found that bank performances

would be appropriate variable for measuring the effect of pre and post privatization on financial

performances of four selected banks in terms of profitability and efficiency measures. After

reviewing the past literatures, I found that the profitability measures would be most suitable for

determining the effect of pre & post privatization on bank performances. Whereas I have used

two Profitability measures for conducting my research study i.e. mentioned below

3.7.1. Return on assets (ROA)

For determining the ratio, ROA; is measured through dividing ‘the total sales by total asset’ for

selected sample time period. The ROA (return on asset) in percentage shows how profitable a

company's assets are in generating revenue.

Return on asset (ROA) is considered useful indicator in case of comparison of two companies in

the same industry because it tells that how the profitable a company is before taking leverage.

But on the other hand, it isn’t used or not considered suitable for comparison of two industries

because of abnormal capital requirements such as reserve requirement in case of insurance and

banking sectors. Return on asset is one of suitable indicator in which total asset figure of

companies is based on carrying value of assets. And even sometimes companies or investor pay

attention if the carrying value of the asset is not equal to the actual market value because ROA is

used to measure the performances of financial units in such case, the carrying value of asset is

either equal or close to actual market value of asset.

3.7.2. Return on Equity (ROE)

For determining ratio, ROE; is measured through dividing ‘the Shareholder’s Equity by total

asset’ for selected sample time periods. This ratio helps in assessing company’s proficiency

through earning incomes from each unit of shareholder’s stock. ROE tells that how a firm uses

shareholders investments to generate earnings. Return on equity (ROE) is similar to financial

years net income divided by total common stock (excluding preferred stock), stated in terms of

percentage. As with many financial ratios, ROE is best measure used to compare companies in

the same industry including banks.

ROE is easy to understand with the passage of time if it is divided into 3 parts and put it

altogether like incase of increasing net margin, sale would be more and it brought more money

which is further resulted in increased in overall ROE ratio. On the other hand, if the asset

turnover is increasing, then it would be the same situation that is raised in number of sales

against every unit of owned asset which further brought to change in higher ROE ratio. When

firm is interested to increase its financial leverage then it means firm’s concentration is focused

on debt financing comparatively to equity financing that’s why the ROE would be higher in

company’s financial position if the debt portion is found more in the company’s capital structure.

3.7.3. Net Interest Margin (NIM)

This study is interested to use one efficiency measure to determine the effect of pre & post

performances of privatized banks i.e. NIM (net interest margin). NIM is a ratio between interest

income earned by financial institution or banks and the interest amount paid out to their

borrowers like deposits.

NIM (net interest margin) is considered as equivalent to gross margin incase of non financial

units or say companies. NIM tells that percentage amount earned income by the financial

institution on borrowed loans in a given time period. NIM is the ratio between the differences of

(interest amount paid by borrowers from deducting other assets) and divisible by average earning

asset (means those average amount of asset in which income is earned in that time period).

Bank Performance considered as dependent variables in this research. Whereas to measure the

effect of pre & post performances of privatized banks in terms of profitability ratios, I have used

two commonly profitability measures & one efficiency measure i.e. ROA (return on asset), ROE

(return on equity), & NIM (Net Interest Margin). After reviewed literature, I came to know that

ROA, ROE, & NIM are considered as best measure to evaluate the performances of banking

institution after its privatization.

Chapter 4

Data analysis

4.1. Data Analysis:

This chapter will present an analysis of empirical data gathered related to financial performances

of bank in comparison to before and after privatization. Data analysis will help to analyze the

cause and effect relationship between variable bank privatization and bank performances in

terms of profitability ratios and efficiency ratio with the help of using paired sample t test

technique in this study. I have done data analysis in two separate parts, firstly; I have collectively

analyzed the performances of four privatized banks in terms of profitability ratios before and

after privatization by applying paired sample t test technique. Secondly, I have done separately

data analysis of individual privatized banks to know that does the individual bank improve its

performances after getting privatized which is attached in appendix as well. Whereas I have used

performance measure in terms of profitability ratios i.e. return on asset, and return on equity and

one efficiency measure i.e. net interest margin in case of bank privatization.

Table 4.1: Summary Statistics for all Banks

Return on asset

Return on equity

Net interest margin

N Mean Std. Deviation

Post-Test ScoresPre-Test Scores

3232

1.44590.1829

0.93208 0.17243

Post-Test ScoresPre-Test Scores

3232

22.93817.6341

10.11483 7.24981

Post-Test ScoresPre-Test Scores

3232

16.342826.4184

20.25046 3.96962

The above table 4.1 is providing assistance in determining the performance of privatized banks

collectively in terms of these profitability and efficiency ratios by applying paired sample t test

technique. Whereas N shows number of observation considered i.e. 32 comprised of four

privatized banks i.e. MCB, UBL, HBL and ABL in both case of pre and post privatization.

The mean value of ROA before privatization is 0.1829, in comparative, there is found significant

change in mean value of ROA after privatization i.e. 1.4459 due to improved performances of

privatized banks that is because of increase in total asset value and income of privatized banks in

case of post privatization period. The standard deviation shows least amount of variation in

ROAPre i.e. 0.17243 as compare to ROAPost i.e. 0.93208 during analysis of pre and post

performance measure of privatized banks. This may be because of improper cost and benefit

analysis, inappropriate asset and investment utilization to profitable business units during buying

or selling assets.

The mean value of ROE before privatization is 7.6341, comparatively, there is found significant

increased in mean value of ROE after privatization i.e. 22.9381. This significant change is

because of two reasons i.e. increase in income of post privatized banks and then raising the

equity level of shareholders through distributing higher return to them in post privatization

period. The standard deviation shows least amount of variation in ROEPre i.e. 7.24981 as compare

to ROEPost i.e. 10.11483 during analysis of pre and post performance measure of privatized

banks. The significant change in case of standard deviation of pre & post ROE may be because

of lack of trust and unequal distribution of return among their shareholders.

There is found significant decline in mean value of post test score of NIM comparatively to the

mean value of pre test score of NIM i.e. the mean value of NIM after privatization is 16.3428

which are lesser than the mean value of NIM before privatization i.e. 26.4184. This significant

decline in improvement is only because of lack in efficiency levels, decrease in asset or loan

quality of privatized banks. The standard deviation shows least amount of variation in NIMPre i.e.

3.96962 as compare to NIMPost i.e. 20.25046 in case of pre and post performance measure of

privatized banks. The significant increase in case of standard deviation of post NIM measure

may be because of improper application of interest, lack in efficiency measure, and credit quality

(policy) in collectively privatized banks.

Table 4.2: Paired Samples Test for all Banks

Paired Differences

Return on asset

Return on equity

Net interest margin

MeanStd.

deviationStd. Error

Mean95% C.I. of the

Differencet df Sig.(2.tailed)

1.26303*

15.30406*

0.07563*

0.97388

13.11739

20.68945

0.17216

2.31885

3.65741

Lower Upper

7.336

6.600

2.755

31

31

31

(.000)

(.000)

(.010)

0.91191

10.57474

17.53497

1.61415

20.03338

2.61628

From above table 4.2; the mean value of pair ROApre & post is 1.2630*, this positive value shows

that the average mean performances of bank improve throughout the sample years taken in case

of post privatization period in paired sample t test. There is found stable position or better

performances of banks in case of post privatization period. It definitely later affected on level of

growth of banking sector in positive terms. The standard deviation shows least amount of

variation of pair ROA pre & post i.e. 0.97388. Such value of standard deviation is because of

improved management, employees, & financial performances of privatized banks.

In case of pair ROA, Confidence interval has the lower and upper limit “0.91191” and

“1.161415” respectively but the confidence interval limits doesn’t contain zero. In case of pair

ROA, since P value is 0.000 which is less than 0.05 that shows significant result so I can reject

null hypothesis and conclude that there is observed significant change in financial performances

of bank after privatization in terms of ROA ratio as compare to before privatization of selected

banks in paired sample t test. Definitely improved in such performance measure helped in

improving not only performance of overall banking sector but it also strengthens the growth of

an economy.

In case of pair ROA, value of t statistics is positive i.e. 7.336 which mean sample mean is greater

than the population mean. In case of pair ROA, the degree of freedom shows a number of

observations selected in random sample i.e. 31. Whereas the degree of freedom is calculated by

N-1 formula in paired sample t test. Standard error mean tells the extent of error in the data of

population mean in paired sample t test. Whereas standard error mean of pair ROApre & post are

0.17216.

The mean value of pair ROEpre & post is 15.3040*, this positive value shows that the average mean

performances of bank is improved throughout the sample years taken in case of post privatization

period comparison to pre privatization in paired sample t test. It may be because of increase in

competition level and decrease in intervention of government. The standard deviation shows

least amount of variation of pair ROEpre & post i.e. 13.11739. Whereas variation in case of pair of

ROE is more than pair of ROA due to improper or unequal distribution of income to their

shareholders i.e. 0.97388.

In case of pair ROE, Confidence interval has the lower and upper limit “10.57474” and

“20.0333” respectively but the confidence interval limits doesn’t contain zero. In case of pair

ROE, since P value is 0.000 which is less than 0.05 that shows significant result so I can reject

null hypothesis and conclude that there is observed improvement in financial performances of

banks after privatization as compare to before privatization of selected bank in paired sample t

test. This significant increased in performance of privatized banks not only improve the

performance of overall banking sector but also it increase the level of growth in the economy.

In case of pair ROE; value of t statistics is in positive i.e. 6.600 which means sample mean is

greater than the population mean. In case of pair ROE, the degree of freedom shows a number of

observations selected in random sample i.e. 31. Whereas the degree of freedom is calculated by

N-1 formula in paired sample t test. Standard error mean tells the amount of error exist in the

data of population mean in paired sample t test. Whereas standard error mean of pair ROEpre & post

are 2.31885.

The mean value of pair NIMpre & post is 0.07563*, this positive value shows that the average mean

performances of bank in terms of pair NIM is improved throughout the sample years taken in

case of post privatization comparison to pre privatization period in paired sample t test. In other

words, the level of efficiency is improved for the sample years taken in case of after privatization

comparatively to before privatization of banks. In short, banks return is increasing in terms of

increase in mean value of NIM measure.

The standard deviation shows least amount of variation of pair NIMpre & post i.e. 20.68945.

Whereas variation in case of pair of NIM is more than pair of ROA & pair of ROE due to

increase in return in short term, & due to decrease in bad application of asset and loan quality.

The large value of standard deviation in pair of NIM shows that the privatized banks are unable

to maintain its efficiency level consistently.

In case of pair NIM, Confidence interval has the lower and upper limit “17.53497” and

“2.61628” respectively but the confidence interval limits doesn’t contain zero. In case of pair

NIM, since P value is 0.010 which is less than 0.05 that shows significant result in bank

performances after privatization so I can reject null hypothesis and conclude that there is

observed significant change or improvement in financial performances of bank after privatization

as compare to before privatization of selected bank in paired sample t test.

In case of pair NIM, value of t statistics is in positive i.e. 2.755 which means sample mean is

greater than the population mean. In case of pair NIM, the degree of freedom shows a number of

observations selected in random sample i.e. 31. Whereas, the degree of freedom is calculated by

N-1 formula in paired sample t test. Standard error mean shows error in the data of population

mean in paired sample t test. Whereas standard error mean of pair NIMpre & post is 3.65741.

Table 4.3: Paired Sample Test for Individual Banks

BankPaired Differences

MCB Bank

Return on asset

Return on equity

Net interest margin

UBL Bank

Return on asset

Return on equity

Net interest margin

MeanStd.

deviation

Std. Error Mean

95% C.I. of the Difference

t df Sig.(2.tailed)

1.755*

18.362*

1.0962

1.463*

24.16*

-15.30*

1.3634

11.358

29.537

0.42196

6.5369

11.572

0.4820

4.0157

10.4429

0.14918

2.31116

4.0914

Lower Upper3.641

4.753

0.183

9.809

10.456

-3.741

7

7

7

7

7

7

(0.008)

(0.003)

(0.860)

(.000)

(.000)

(.007)

0.6151

8.8667

-22.787

1.11061

-18.7012

-24.982

2.8948

27.858

26.599

1.81614

29.6312

5.632

HBL Bank

Return on asset

Return on equity

Net interest margin

ABL Bank

Return on asset

Return on equity

Net interest margin

1.133*

12.94*

13.265

0.7000

5.7425

-13.63

0.64465

9.61409

19.5938

1.01216

16.9274

16.8497

0.22792

3.3990

6.92745

0.3612

5.9847

5.9572

0.59481

4.9074

-29.6458

0.15415

-8.4092

-27.7229

1.67269

20.9825

3.11583

1.5541

19.842

0.4504

4.974

3.808

-1.915

1.938

0.960

2.289

7

7

7

7

7

7

(0.002)

(0.007)

(0.097)

(0.094)

(0.369)

(0.056)

The above table 4.3 shows analysis of individual banks by using paired sample t test technique.

From above table 4.3 shows insignificant P-values i.e. (0.094), (0.369), & (0.056) which are

greater than 0.05 in each pair comparison of return on asset (ROA), return on equity (ROE), and

net interest margin (NIM) of Allied Bank limited (ABL) that shows these performance measure

of ABL are not improved after privatization. That is may be because of other factors that

considered more relevant to influence the performances of ABL in case of before and after

privatization period instead of measuring its financial performances in terms of profitability

ratios.

But it doesn’t mean that the ABL performances aren’t improved due to privatization, so in such

case there are factors that could consider important in measuring its financial performances like

improvement in advancement, bank deposits, account receivable and inventory turnover ratio. In

case of analyzing ABL bank performances, I found decrease in mean value of pair comparison of

NIM measure i.e. ‘-13.63’ due to decrease in efficiency level and return (interest margin) of bank

after process of privatization for short term period.

In case of United bank Ltd, it shows significant p- value and mean value in each case of pair

comparison of return on asset, return on equity and net interest margin even its mean value get

improved that means return is improved in such pair comparison of these two measures (ROA &

ROE). Whereas its p- values (0.000), (0.000) & (0.007) are less than 0.05 so I can reject null

hypothesis and conclude that there is observed significant change or improvement in financial

performances of UBL bank after privatization in terms of these ratios as compare to before

privatization by using paired sample t test technique. But there is found the negative mean value

in case of pair NIM measure i.e. ‘-15.3*’ that may be because of decrease in efficiency level of

NIM measure in case of post privatization period.

In case of Habib bank ltd, it shows significant increased in mean values (i.e. 1.133* & 12.94*)

and p- values of pair comparison of return on asset and return on equity in both cases of before

and after privatization i.e. its p-values of pair ROA (0.002) and pair ROE (0.007) are less than

0.05 that means I can reject null hypothesis because there is observed significant improvement in

financial performances of HBL bank after privatization in terms of improving profitability ratios

except measure NIM with respect to before privatization in paired sample t test.

In case of Muslim commercial bank ltd, it shows significant p-values in pair comparison of

return on asset, return on equity but except measure net interest margin that is its p- values

(0.008) in pair of ROA, and (0.003) in pair of ROE are less than 0.05 that means null hypothesis

can be rejected and conclude that there is observed significant changed or improvement in

financial performances of MCB in profitability ratios in case of post privatization period in

paired sample t test.

By observing these output of privatized banks collectively I come to know that the performances

of these banks not only improved after the privatization but also able to sustain their

performances in terms of profitability ratios (ROA, & ROE) and efficiency ratio i.e. NIM which

is clearly shown through its significant p-values in paired sample t test output. Collectively, it is

proved that the performances of selected privatized banks (named as MCB, UBL, HBL, and

ABL) get improved after privatization comparatively to before privatization because its p-value

is less than 0.05 in each case of pair comparison of ROA, ROE, and NIM measure.

For conducting data analysis in my research study, I make two separate parts for data analysis,

firstly I measure the performances of four selected privatized banks together based on sample

selected sample years data in terms of above mentioned profitability and efficiency ratio.

Secondly, I evaluated the performances of privatized banks individually through analyzing these

ratios ROA, ROE, and NIM in both case of before and after privatization of bank through

applying technique of paired sample t test. By doing separate data analysis of these privatized

banks, I would be able to disclose that which bank performances get improved or remained same

or become worse after the privatization with respect to before privatization. Whereas, I have

attached separate data analysis of individually privatized banks in appendix of my research

study.

Chapter 5

Conclusion

5.1. Conclusion:

This study is about “the effects of bank privatization on its performances in the frame of

Pakistan”. Whereas, the bank privatization means the transformation of government ownership

into private one. In Pakistan, it is observed that most of the government institution whether

financial or non financial institution are weak in performances than private and foreign one

including banks. And it is fact that banking sector is considered backbone for growth and

economic development for any country. Through this research study, I wanted to know that does

the bank privatization helps in improving the performances in terms of working condition and

profitability situation of government banks after getting privatized with respect to before

privatization.

So, the reason of investigating the effect of bank privatization on bank performances is to know

that does the bank performances are improved after the privatization in the context of Pakistan.

And, if it is so then to what extent these privatized banks are able to sustain and improve its

performances after the privatization in Pakistan. To conduct my research study in order to

evaluate the relationship between bank privatization and bank performance in the frame of

Pakistan, I have considered four privatized banks named as Muslim Commercial Bank Ltd

(MCB), Allied Bank Ltd (ABL), United Bank Ltd (UBL), and Habib Bank Ltd (HBL) based on

selected annually twenty five years data through financial reports of such privatized banks.

To conduct my research study, I have used quantitative approach based on secondary statistics

through annual reports of privatized banks, SBP website and visited State bank library. Whereas,

I have used causal comparative research design to evaluate the cause and effect relationship

between two variables bank privatization and bank performance measures in terms of

profitability ratios (ROA & ROE) and efficiency ratio i.e. NIM. Whereas I measured the

performances of banks in terms of these profitability and efficiency ratio to know that how much

these bank privatization improve the financial performances of selected banks in comparison to

before privatization in the context of Pakistan.

Whereas I have used secondary source for data collection related to four privatized banks (named

as MCB, ABL, UBL and HBL) from sample years taken from 1985 to 2009 through annual

reports. I could gather only twenty five years of annual data due to data constraint in case of

collecting quarterly data. In Pakistan, there are five banks are privatized in history but out of

which one bank BEL (Banker’s Equity Ltd.) was bankrupt in past, so I have chosen as sample all

four privatized banks as part of my research study. Although, the sample size of data is based on

eight years analysis of each four mentioned banks collectively to evaluate the effects in both case

of before and after privatization. So the number of observation is based on number of years taken

of each bank collectively i.e. become 32 number of observation. Whereas, I have applied paired

sample t test technique to measure the financial performances of bank before and after

privatization in case of pair comparison of these research variables in the context of Pakistan to

know that does the bank privatization improves bank performances or not.

Whereas I have done data analysis into two separate parts, firstly; I measure the performances of

these four privatized banks collectively by applying paired sample t test technique on available

32 number of observation (based on eight years sample data of each bank) to know the actual

impact on performance of these banks in both case of before and after privatization. Secondly, I

measure the performances of individually privatized banks by applying paired sample t test

consisting of 8 years number of observation before and after privatization.

Through data analysis, I found that the performances of these banks collectively improved and

have significant impact on its performances after the privatization because its mean & p- value,

in all cases of pair comparison of ROA, ROE, NIM measure, shows significant increased in its

value that is its P- value is less than 0.05 in all cases that means I can reject my null hypothesis

and conclude that the privatization have significant impact or say improved bank performances

in the context of Pakistan. So this is fact that the performances of government banks are

improved after the privatization as compare to before privatization in the Pakistani context.

On the other hand, when I have done separate analysis of these four privatized banks (named as

MCB, UBL.ABL, and HBL) then the result is also come in favor of bank privatization. Out of

four privatized banks, three banks performances (named as MCB, UBL and HBL) performances

are improved after the privatization because its P- value are less than 0.05 in all case of pair

comparison of ROApre & post, ROEpre & post, and NIMpre & post which shows significant outcome as a

result of post privatization of government banks.

But one privatized bank i.e. ABL bank performances is not sustainable or improved after the

privatization which is clearly shown in table 4.3 through its p-value which is greater than 0.05 in

all case of paired sample t test. That means the selected performances measure (bank

performance variables) of ABL aren’t improved after the privatization in my research study so

there may be chances of other factors that may have impact on bank performances of ABL after

privatization. It could be variables that are considered important in evaluating performance of

ABL like Account receivable ratio, Inventory turnover ratio etc. But in majority I can conclude

that bank privatization does have significant impact on bank performances in the context of

Pakistan so I can reject my null hypothesis on basis of individual analysis in case of three banks

named as MCB, UBL and HBL that is the performances of these three banks improved

significantly after the privatization except ABL privatized bank.

Similarly, according to past researchers, I come to know that the different researcher may have

emphasized on reforms in banking sector commonly through source of privatization process,

restructuring and Merger and acquisition (M & A) of government banks through domestic or

foreign strategic investor. Because they thought that the reforms or say privatization of banks

took place successfully in many countries of different regions. Many researchers disclosed that

the privatization of weak government banks has been taken place in many different countries

(named as Argentina, Bulgaria, Poland, Brazil, Czech Republic, etc.) and different regions

specially developing and transitional economies, European and Asian region.

The past researcher disclosed different results regarding privatization that the performance of

government banks often improved after getting privatized in most of the countries in different

phases. Unlike few privatization took place in earlier period of 1990s were remained quite

successful and few privatization took place in second phase (from 1997 to 2000s onward) were

remained successful in different developing and transitional economies named as Brazil, Egypt,

Malaysia and many more but except Australia. Many researchers revealed that the performances

of privatized banks are better than the government owned banks but it lacks in performance as

compare to private and foreign owned banks that’s why the different researcher emphasized on

privatization of weak government banks through foreign strategic investor because they are more

motivated and concentrated towards work than government employees. Many past researchers

disclosed the common results that the performances of privatized banks are measured in terms of

profitability ratios (like ROA, & ROE), were significantly improved later instead of using other

measures to evaluate it.

In short, if I compare my study and past researches based on my analysis, I come to conclusion

that the bank privatization improves the bank performances in terms of profitability & efficiency

ratios in the frame of Pakistan. But also it is evident that these reforms took place quite

successfully in past based on different measures in many countries of different regions whether it

belongs to developing and transitional economies.

5.2. Findings:

It is confirmed that the privatization of specially government banks (named as MCB,

HBL, ABL, and UBL) were taken place quite successfully in past in the Pakistani context

because such privatized banks improved its financial performances in terms profitability

and efficiency measures.

The process of bank privatization and it outcomes not only brings reforms in Pakistani

banking industry but also strengthen the financial institution with improving the

performances of non financial institution as well.

The process of privatization encourages the foreign investment and competition in

Pakistan among different sectors including financial & non financial domestic and

foreign institutions.

Privatization of government banks brought improvement in working condition,

profitability situation of banks, increased of number of customers, improvement in

deposit fund and advancement opportunity to creditors.

Specially it provides direction for the betterment, growth, and economic development of

an economy, e.g. country like Pakistan because the privatization of banks help in

preventing the politicians and bureaucrats to intervene in the affairs of banking institution

and used its deposits for personal motives rather for country benefits that’s how the

economy required to bring reforms through such privatization of financial institution like

banks because then that process will work for betterment of an institution and society as

well.

I have found that it is better to privatize the government banks through foreign strategic

investor, even keeping partial or minimum shares in stake of privatized bank by

government would be useless because such privatization will not be fruitful, nor it

improves the performances of privatized banks after privatization. Although it could

create issues like facing losses, mismanagement, and heavy burden of costs, government

intervention, and improper use of funds whether deposits or issuing credits.

5.3. Recommendation:

This study would be guide for those researchers who further interested to investigate the

other factors related to importance and effects of bank privatization on bank

performances in the context of any country.

This study would give new direction for future outlook to those researchers who wanted

to evaluate that “how the bank privatization brings improvement in working condition for

motivation of employees.” Or in other words; “ to evaluate the bank privatization and

improvement in working condition for motivation of employees”

This study would further provide opportunity to existing and new researchers in any

country specially Pakistan to analyze “the effects of bank privatization through foreign

strategic investor on bank performances.”

This research study will provide platform to study “the effects of bank privatization on

competition among domestic, privatized and foreign private banks” in the context of any

country including Pakistan.

This study will provide further opportunity to existing and new researchers to analyze

“the effect of restructuring on performances of government banks” in the context of any

country including Pakistan.

Future researchers would able to easily work on above areas related to privatization and reforms

of banks.

References:

Burki A. A. (October 2006), “Impact of Financial reforms on efficiency of State owned,

Private, and Foreign banks in Pakistan”, wpaper 06-49

URL:http://ravi.lums.edu.pk.cmer

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Appendix:

I have done separate analysis of privatized banks to evaluate the cause and effect of pre and post

privatization on financial performances of individual banks in terms of profitability ratios to

know that does the individual banks improve its financial performances after privatization in

comparison to before privatization.

Appendix A: Paired Sample statistics for Allied bank ltd

Return on asset

Return on equity

Net interest margin

N Mean Std. Deviation

Post-Test ScoresPre-Test Scores

88

0.86750.1675

0.95415 0.10181

Post-Test ScoresPre-Test Scores

88

17.280011.5375

13.121147.51864

Post-Test ScoresPre-Test Scores

88

15.842529.4788

15.33041 3.15426

Appendix B: Paired Sample Statistics for Muslim commercial bank ltd

Return on asset

Return on equity

Net interest margin

N Mean Std. Deviation

Post-Test ScoresPre-Test Scores

88

2.07250.3175

1.28861 0.17434

Post-Test ScoresPre-Test Scores

88

28.892510.5300

11.22459 6.40565

Post-Test ScoresPre-Test Scores

88

30.433828.5275

27.74946 3.33976

Appendix C: Paired Sample Statistics for Habib bank ltd

Return on asset

Return on equity

Net interest margin

N Mean Std. Deviation

Post-Test ScoresPre-Test Scores

88

1.337750.2438

0.51233 0.16928

Post-Test ScoresPre-Test Scores

88

21.31138.3663

5.51260 6.53902

Post-Test ScoresPre-Test Scores

88

8.766322.0313

17.99780 2.58744

Appendix D: Paired Sample Statistics for United bank ltd

Return on asset

Return on equity

Net interest margin

N Mean Std. Deviation

Post-Test ScoresPre-Test Scores

88

1.46630.0029

0.42095 0.00217

Post-Test ScoresPre-Test Scores

88

24.26870.102500

6.51043 0.07126

Post-Test ScoresPre-Test Scores

88

10.328825.6363

12.36741 1.87173