Abstract
This study is aimed to compare the asset quality of public and private
sector banks of Pakistan covering the period from 2006 to 2014 using the
secondary data collected from the official document issued by the State Bank of
Pakistan (SBP). Five ratios were used as a measure of asset quality consisting
of Non-performing loans (NPLs) to gross advances, Provision against NPLs to
gross advances, NPLs to shareholders’ equity, NPLs write-off to NPLs provision
and provision against NPL to NPLs. The independent t-test was used to
determine the difference between means of these ratios of both the banks.
Tukey’s Hinges formula, Shapiro-Wilk Test and Levene’s Test were used to
check the assumptions of t-test along with Welch Test to validate the results of ttest in case of non-homogeneity of variances. The significant difference was
noted between the means of two banks in case of first and third ratio with high
mean values for public sector banks whereas means of second and fourth ratio
were high for private sector banks, however, these ratios were not significantly
different. The last ratio of both banks was significantly not different from each
other although its mean value was slightly greater for private sector banks.
Overall, the asset quality measures of public sector were not favorable which
demanded (i). better administration of credit policies, (ii). due assessment of
borrower including risk exposure, monitoring, profit and cash flow evaluation
and business potential (iii). capacity building and training of credit staff (iv).
automation of loan sanctioning and monitoring process (v). improvement of
loan collection procedures and (vi). proper care in drafting of loan contract by
including the legal covenants and on time initiation of legal proceedings in case
of potential loan default.
Dr. Anjum Ihsan, Dr. Shafiq ur Rehman, Dr. Mushtaq Ahmad Jadoon. (2016) Comparative Analysis of Asset Quality: Evidence from the Public and Private Sector Banks of Pakistan, Abasyn Journal of Social Sciences, Volume-09, Issue-1.
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