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1、BankingRiskandEfficiency:AnEvidencefromCommercialBanksofPakistanaShabbirAhmad,SchoolofEconomics,InternationalInstituteofIslamicEconomics,InternationalIslamicUniversity,Islamabad,PakistanbAbstractThepaperexaminestheimpactofriskandqualityfactorsonbankscoststructure.Usingthestochasticcostfro

2、ntierthetechnicalefficiencyandtechnicalchangeisestimatedforallcommercialbanksofPakistanduring1991-2002.Resultsshowthatinclusionofriskandqualityvariablesintocostfunctionimprovetheefficiencyofbanks.However,efficiencyofpubliclyownedbanksremainsinsensitivetothesefactors.Moreover,resultsindica

3、tethattechnicalchangereducesthecostofintermediationofallbanks,by1percentonaverage,duringthestudyperiod.Wealsofindthatbothnon-performingloansandotherriskfactorsputadownwardpressureonbankingefficiencysuggestingthatdiversificationofloanportfoliotodifferentsectors.KeyWords:BankingRisk;Non-per

4、formingloans;Efficiency;TechnicalChange1.INTRODUCTIONTheservicesinbankingindustryhavechangeddramaticallyinrecentyearsacrossthegloberesultinginthediversificationofbankproductsandportfolio.Thisdiversificationhasputnewchallengestoriskmanagementandefficiencyofbanks.Thesophisticationoffinancia

5、ltechnologycoupledwithderegulationandliberalizationhasmadetheriskprofilesoffinancialinstitutionsevenmorecomplex(CebenoyanandStrahan,2004,BecherandCambellII,2005).Duringthelastdecade,riskmanagementatbankshasreceivedconsiderableattentionbothindevelopedanddevelopingcountriesinordertodevelopa

6、soundandstrongbankingsystem.Thishasledregulatorstoconsiderbothinternalandexternalcreditmodelstodevisecapitaladequacystandards.Duringthe1990smuchoftheliteratureonfinancialsectorhasfocusedontheperformanceofbankingindustryaroundtheglobe.Manyresearchershaveinvestigatedtheperformanceofbankings

7、ectorusingstandardeconometrictechniques.aIamgratefultoAsifSaeedforhisvaluablecommentsonearlierdraftofthispaper.IamalsothankfultoShazadaMuhammadNaeemNaeemstudentofPhDEconomicsatIIIE,forhisableresearchassistance.bAuthor’semailaddressis:kasuri85@yahoo.comshabbirahmad@c