Uncovering Key Performance Indicators for Private Sector Banks in Pakistan: An Application of Exploratory Factor Analysis

Abstract

Efficiency of banking system leads to efficient allocation of scarce resources by the financial system of a country. Bank’s efficiency is ascertained through different mechanisms. One of the mechanisms uses the aspect of Key Performance Indicators (KPIs). Considerable literature exists on KPIs for non-financial organizations. However, for the financial sector, deliberation on KPIs is uncommon. This research paper endeavors to fill this gap especially for Pakistani Commercial Banks belonging to the private sector. A total of 25 Pakistani commercial banks are listed with the State Bank of Pakistan, out which five are owned and controlled by the Government of Pakistan. The remaining 20 belong to the private sector. Out of these 20, secondary data of top 10 private sector banks selected on the basis of asset size was analyzed for the five year period from 2011 to 2015. Statistical technique of Exploratory Factor Analysis (EFA) was applied on 28 different financial ratios to uncover four categories of possible KPIs.