Ownership Structure of Banks and Credit Allocation Efficiency in Pakistan

Sobia Ehsan1 Attiya Y. Javid2

1 Corresponding Author, PhD Research Scholar, NUST Business School, National University of Sciences and
Technology (NUST), H-12, Islamabad. E-mail: sobia.ehsan@nbs.nust.edu.pk

2 Head of Economics Department, Pakistan Institute of Development Economics, PIDE, Islamabad.

1
Abstract

Credit allocation efficiency is described as if credit is allocated efficiently, more productive industries

should receive more bank credit and less productive industries should get less bank credit. Industries that

contribute more to GDP are considered to be more productive. Therefore, for an efficient banking

industry it is important to allocate credit efficiently to promote growth in the economy. If the credit goes

to the right industry, the industry grows thus demand for finance increases. Consequently, the financial

sector grows in tandem with economy.

This paper contributes to the existing literature by examining the impact of ownership structure of banks

on credit allocation in Pakistan. The sample used comprises a panel data of 16 banks in Pakistan, for the

period from 2000 to 2015. To examine the impact of bank ownership structure on how credit is allocated

to various sectors 10 different sectors are selected. First, we examine the impact of ownership

concentration on credit growth and credit allocation efficiency. Further, we analyze the impact of types of

ownership such state ownership, family ownership, institutional ownership and foreign ownership on

credit growth and allocation efficiency.

The result of this study ownership concentration has detrimental effects on total credit growth as well as

credit allocation efficiency in Pakistan. Further analysis shows that government, foreign and institutional

ownership has negative impact on credit growth while family ownership has positive impact on credit

growth. The overall impact of type of ownership on credit allocation efficiency of banks is negative for

government and foreign ownership and positive for institutional and family ownership. Our findings

suggest that an increase in ownership concentration in every type of ownership has hampered credit

allocation efficiency in Pakistan.

Key Words: Corporate Governance, Banks, Ownership Structure, Credit Allocation Efficiency, Credit

Growth

2
1. Introduction

Banks being primary financial intermediaries provide a strong link between finance and growth in

emerging economies (Rajan & Zingales, 1998). It is the role banks to screen out bad projects and allocate

credit efficiently. To achieve efficient allocation of credit by banks, more credit is supposed to be invested

in the industries that are expected to have better growth and less credit should be invested in industries

with poor prospects. Beck et al., (2000) explain that if allocation of credit is efficient only then there will

be a positive relationship between economic growth and financial development. The agency theories by

Jensen and Meckling (1976) highlight the role of ownership structure in shaping the ability of banks to

allocate capital in the economy. Large scale privatization has changed ownership structure of banks

around the world during past decades (La Porta, et al., 2002). Resultantly, government ownership of

banks has declined and ownership of banks is shifted to either domestic or foreign shareholders.

Following the global trend, privatization of government owned banks has changed banking sector

ownership structure in Pakistan also. A wide range of researchers have investigated the impact of

privatization of banks on various dimensions in developed and developing countries. However, there is

little empirical assessment on the macro level implications of changes in banks ownership structure.

Particularly, the impact of bank ownership structure on capital allocation efficiency is an important topic

that has yet to be explored.

Only few studies e.g., Marchica et al., (2013), Taboada (2011) and Beck et al., (2003) have examined the

link between banks ownership structure and capital allocation efficiency. With this background, the

attempt of this paper is to contribute to the existing literature by examining the impact of ownership

structure of banks on credit allocation in Pakistan. Following Taboada (2011) we argue that if credit is

allocated efficiently, more productive industries should receive more bank credit. Industries that

contribute more to GDP are considered to be more productive. Therefore, for an efficient banking

industry it is important to allocate credit efficiently to promote growth in the economy. We investigate

that whether ownership concentration of banks has impact on credit allocation efficiency of commercial

banks in Pakistan. We further investigate that whether different types of ownership, i.e., State ownership,

3
family ownership, institutional ownership, and foreign ownership has significant impact on credit

allocation efficiency in Pakistan.

The banking industry in Pakistan has undergone major transformation during last three decades. In mid

1970s the domestic banks were nationalised by the government. The state ownership of banks resulted in

financial inefficiencies3 and deterioration of financial institutions. Realizing the ineffectiveness of

nationalisation policy, the government decided to privatise government owned banks in late 1980s. By the

end of 1990s the government introduced financial sector reforms in financial sector. Under financial

liberalization (one of the financial sector reform) the banking sector was liberalized by allowing private

banks to operate in the country along with national banks.

The banking system across Pakistan is diverse in its structural composition and scope of activities. By the

end of 1990s (when government initiated its financial sector reforms) there were 6 public sector

commercial banks (PSCBs), no domestic private banks (DPBs), 21 foreign banks (FBs) and 4 specialized

banks (SBs). The table shows that the government or state ownership has declined over the time which

resulted in an enlargement of the private banking sector. At the same time, foreign banking in Pakistan

has expanded during recent years; the entry of foreign banks is more a reflection of the international

business expansion. Currently, there are 5 PSCBs, 22 DPBs and 7 FBs operating in the country.

The resulting changes in ownership of banks from state ownership of PSCBs to private ownership of

DPBs raise important issues for research. Efficiency, within the banking sector, is the core concern for not

only academics but economists too. In recent literature the impact of structural changes in Pakistani

Banking industry on bank performance has received a lot of attention. In this paper, we investigate

whether and how bank ownership concentration and various types of ownership affect credit allocation

efficiency on data of commercial banks in Pakistan for the period 2000 to 2014.

The rest of the paper is organized as follows. Section 2 surveys the empirical literature on bank ownership

structure and credit allocation. Section 3 describes methodology and data. Section 4 presents empirical

findings. Section 5 concludes the paper.

3
These inefficiencies include overstaffing, over-branching, poor quality of services, and lack of governance.

4
2. Literature review

2.1 Ownership concentration and credit allocation

Morck et al., (2005) provide an extensive survey on concentrated ownership of bank and its effect on

capital allocation by banks. They argue that if bank ownership is concentrated it will lead to biased capital

allocation and restrict credit growth. Wurgler (2000) provides evidence of worse capital allocation in

countries where ownership of banks is concentrated in few hands. In case of concentrated ownership, the

large stakes of owners is associated to the banks they own. Therefore, they invest in a risk-averse manner

and select inefficient projects to invest. Similarly, John et al., (2008) provide evidence of low growth in

economies where investor protection is poor and ownership concentration prevails. Similarly, Marchica et

al., (2013) argue that diversified ownership of a bank imply better capital allocation as compared to

concentrated ownership.

This is explained by the traditional risk shifting hypothesis which states that the shareholders with a

limited liability in total value have incentives of obtaining unlimited gains without having losses.

Therefore, they have a clear incentive to increase the risk taking (Galai and Masulis, 1976) so that more

credit is advanced to growth opportunities (industries that need finance to growth). On the basis of this

literature, we test that whether concentration of ownership has impact on credit growth. And

concentration of ownership has impact on credit allocation efficiency.

2.2 Types of bank ownership and credit allocation

2.2.1 Government ownership and credit allocation

Empirical evidence on impact of government ownership of banks generally documents detrimental effects

of government ownership on financial development and economic growth of a country (Galindo and

Micco (2004), La Porta et al., (2002). La Porta et al., (2002) provide that government ownership of banks

can be explained under two alternative views i.e., the development view and the political view. The

development view optimistically believes that state ownership of banks has economic and financial

development agendas that are different from other commercial banks. They provide a platform to finance

government projects irrespective of their risk and return. In contrast, the political view (Shleifer and

5
Vishny (1994) suggests that the government has interest to allocate resources for their political motives

through state owned banks. These political motives may include providing employment, financing

favored enterprises, provide subsidies and other benefits to supporters, who return the favor in the form of

votes, political contributions, and bribes (see, e.g., Kornai (1979), and Shleifer and Vishny (1994)).

Galindo and Micco (2003) reject the view that government ownership of banks promotes growth by

channeling credit to sectors that cannot access external finance or rely on external finance. The political

motivation of government ownership of banks has been largely supported by existing literature. LaPorta

et al., (2002) provide evidence from 92 countries that higher ownership of banks by government is related

to slow financial development and low economic growth. Barth et al., (2004) evidenced a positive

relationship of government ownership of banks with corruption. Firth et al. (2009) find evidence that

political connections play a role in gaining access to bank finance in China. In this paper, we test that

whether government ownership has detrimental effects on credit growth and credit allocation efficiency in

Pakistan.

2.2.2 Domestic ownership of banks and credit allocation

In private banks where the large block holders are domestic owners (i.e. companies, families or

individuals) the impact of capital structure on resource allocation remains inconclusive. It is argued that

institutional owners have substantial interests in non financial firms as well. Therefore, they are able to

direct a significant portion of their lending to their related concerns. (La Porta, et al., 2003; Leaven,

2001), observed this behavior primarily in developing countries. Various researchers provide that family

and individual ownership of banks are related to more inefficiency in credit allocation (e.g., La Porta et

al., 2002; Morck at al., 2011; Taboada 2011; Wurgler 2000). We test that whether domestic ownership of

banks has impact on credit growth and credit allocation efficiency in Pakistan.

2.2.3 Foreign ownership of banks and credit allocation

Foreign-owned banks tend to outperform their domestic peers in terms of profitability and cost efficiency,

primarily in emerging markets (Claessens et al., 2001; Bonin et al., 2005; Micco et al., 2007). In addition,

several studies document the impact of foreign bank entry on domestic banks. Micco et al. (2007) find

6
that foreign bank presence is associated with increased competitiveness of the domestic banks (lower

margins and lower overhead costs). (La Porta, et al., 2003; Laeven, 2001) argue that the presence of

foreign ownership in banks ownership structure has positive effects on capital allocation efficiency.

More recently, Detragiache et al. (2008) develop a model that predicts that foreign banks are better than

domestic banks at monitoring “hard” information (e.g. accounting information, collateral value), but have

a disadvantage in monitoring “soft” information (e.g. entrepreneurial ability). This leads foreign banks to

lend to safer and more transparent customers or to avoid lending to opaque firms (Berger et al., 2001;

Mian, 2006). This leads to an overall reduction in credit to the private sector. Giannetti and Ongena

(2007) provide that foreign ownership can help mitigate lending problems and improve capital allocation.

We investigate that whether foreign banks has significant impact on credit growth and credit allocation

efficiency in Pakistan.

2.2.4 Contribution of this Study

Though impact of privatization of banks is widely investigated topic yet the impact of ownership of

structure on credit allocation efficiency is still little explored. There are only few studies explaining how

ownership structure effects credit growth and credit allocation efficiency in the country. Marchica et al.,

(2013) study the impact of portfolio diversification in capital allocation efficiency and provide that there

is significant positive impact of shareholders diversification on credit allocation efficiency. As an

alternative channel we explore impact of ownership concentration on credit growth and credit allocation

efficiency. Taboada (2011) explores the how changes in ownership structure of banks after privatization

affects capital allocation. They provide evidence that increase in domestic ownership results in inefficient

allocation of credit and increase in foreign ownership increases credit allocation efficiency. In this paper,

instead of accounting for changes in ownership structure we consider actual percentage of shares held by

state, domestic owners, and foreign owners in each bank each year. Using data of commercial banks from

a single emerging country like Pakistan allows us to examine the issue more closely.

7
3. Methodology

3.1 Sample Description

The selection of 16 sample commercial banks is primarily based on availability of annual reports of these

commercial banks for the sample time period (2000-2015). In present study the author has to build a new

database with respect to the ownership structure of banks. Data is obtained from annual reports of the

banks and State Bank of Pakistan publications. To examine the impact of bank ownership structure on

how credit is allocated to various sectors 10 different sectors are selected. This is subject to availability of

complete data of the overall credit provided to the particular sector by sample banks as well as

information on the annual contribution of each sector to the real GDP. Data on the annual contribution of

each sector to the real GDP is collected from Federal Bureau of Statistics.

3.2 Variables Description

3.2.1 Dependent Variables

Total Credit Growth: Total credit growth represents nominal growth in credit with respect to previous

year provided by a bank. This is further categorized as public sector credit growth and private sector

credit growth.

Industry Credit Growth: The credit growth represents nominal growth in credit with respect to previous

year provided to a particular industry by commercial banks.

3.2.2 Independent Variables

Ownership structure of a bank is measured in terms of ownership concentration and type of ownership.

Ownership concentration refers to the percentage of the stock owned by large block shareholders. The

sum of direct and indirect voting rights is used whenever the information is available. In absence of such

information only direct participation of the shareholder is used. Ownership Concentration OC is defined

as the equity participation of the largest shareholder of the bank. Different types of bank ownerships

include government ownership, Domestic ownership and foreign ownership. is defined as

proportion of number of shares held by government to total number of outstanding shares. Similarly,

8
FAM is defined as proportion of number of shares held by a family owner to total number of outstanding

shares. INST is defined as proportion of number of shares held by a institutional owner to total number of

outstanding shares and FOR is defined as proportion of number of shares held by foreign investor to total

number of outstanding shares.

HVA higher value addition is a dummy variable that takes value of 1 if the real value added in an

industry in year t-1 is above the median industry value added and 0 otherwise.

3.2.3 Control Variables

Bank specific control variables are size, growth and financial leverage. Size of the bank is measured as

log of bank’s annual total assets. Large banks have better risk diversification opportunities than smaller

ones (McAllister & McManus, 1993). Therefore, a positive relationship between credit growth and size is

expected. Bank’s growth is measured as average growth in total income (EBIT) with respect to previous

year. Higher levels of income expect to have positive relationship to credit growth. Financial leverage is

measured in terms of equity to assets ratio. Macro level variables include last year’s GDP growth rate

(real) and last year’s inflation. Faster GDP growth in the previous year could give significant increase to

demand for credit and inflation could reduce the value of outstanding loans.

3.3 Model specification and methodology

3.3.1 Ownership concentration, credit growth and credit allocation efficiency

Before, examining affect of ownership structure on how credit is allocated, the effect of ownership

structure on credit growth is examined. The following regression framework is used in the analyses:

… Eq. (1)

Where is the annual growth in credit provided by the bank i in year t. OC is the

ownership concentration of bank i in year t. are bank level control variables. are

country level control variables. The given equation determines whether the ownership concentration

9
impacts the credit growth of a bank. As next step, the paper will explore that whether credit is being

directed to the right industry. Defining good industries as those which generate higher value added, the

paper aims to examine whether changes in bank ownership structure affect the quality of the allocation of

credit. If countries allocate credit efficiently, productive industries should receive more credit.

… Eq. (2)

Where is the annual growth in credit provided by the bank i in year t. OC is the

ownership concentration of bank i in year t. The given equation determines whether the ownership

concentration impacts the credit growth of a bank.

3.3.1 Type of ownership, credit growth and credit allocation efficiency

… Eq. (3)

… Eq. (4)

Where is the annual growth in credit to industry j provided by the bank i in year t.

HVA is a dummy variable which equals 1 if industry j’s average value added (contribution to GDP) is

above the median for all industries in year t, and 0 otherwise; OC refers to bank ownership concentration

in during year t.

For panel data analysis Generalised Method of Moments (GMM) technique proposed by Arellano and

Bond (1991) and modified by Arellano and Bover (1995) and Blundell and Bond (1998) is used to derive

the results for the regressions. As emphasized by Roodman (2009) we do not have suitable instruments

outside the available data set. Therefore, we must draw instruments from within the dataset. GMM

provides this convenience that we are able to use lags (up to t-2) of explanatory variables as instruments

which have both qualities that they are uncorrelated with error term and correlated with dependant

10
variable. The dependent variables are dynamic in nature as they depend on past realizations. Other

variables in the model like size, growth, leverage and liquidity are suspected to be endogenous. The

model is over-identified as there are more instruments (strictly exogenous variables) than parameters

(endogenous variables). Finally, heteroskedasticity and autocorrelation within banks is confirmed by

using Modified Wald Test and Wooldridge Test respectively. The use of system GMM is considered to be

more efficient than difference GMM because in difference GMM only transformed equation is used.

4. Results

4.1 Ownership concentration, credit growth and credit allocation efficiency

Table 1 presents the results of the impact of ownership concentration of banks on banks credit

growth. The results reported in column 1 show that ownership concentration has negative impact

on credit growth of bank. Further results reported in column 2 and 3 show that ownership

concentration has negative impact on credit growth in both public and private sector. These

results are similar to the results given by Wurgler (2000), Morcl et al., (2005) and John et al.,

(2008).

Table 1. Ownership Concentration and Credit Growth

Sr. No. Independent Variables Total Credit Public Credit Private Credit
Growth Growth Growth
1 L. 1 -0.101** 1.125*** 0.201**
2 OC -0.0183*** -0.0322*** -0.0730**
3 Size 0.0719*** 0.0945*** 0.208**
4 Growth -0.0357*** 0.174*** -0.208*
5 Equity/Assets -3.833*** 7.448** -16.33***
6 GDP Growth t-1 0.0209*** -0.0736*** 0.0399***
7 Inflation Rate t-1 -0.0267*** -0.0369** 0.0505

No. of Obs. 252 252 252

Number of groups 16 16 16
Number of Instruments 129 153 153
GMM-STYLE Instruments 1, 3, 4, 5 1, 3, 4, 5 1, 3, 4, 5
IV-STYLE Instruments 2, 6, 7 2, 6, 7 2, 6, 7
Arellano-Bond test for AR(2) in first 0.298 0.00 0.00
differences ( z ; Pr > z) 0.00 0.004 0.00
Sargan Test of overid. Restrictions 0.00 0.00 0.00
* p<0.05, ** p<0.01, *** p<0.001

11
Size of the bank has significant positive effect on credit growth. Growth of bank which is

measured as growth in total income of bank is negatively related to total credit growth. Bank

growth has significant positive impact on credit growth in public sector and negative impact on

credit growth in private sector. Equity/Asset ratio measures financial health of the bank. Higher

the Equity/Asset ratio lower is the total credit growth of a bank. However, Equity/Asset ratio has

appositive impact on public sector credit. The overall GDP growth of the country has a

significant positive impact on total credit growth and private credit growth while GDP growth of

the country has a negative impact on public sector growth. Inflation rate has a negative impact on

total credit growth and public sector credit growth while it has positive impact on private credit

growth.

Table 2 presents the results of impact of ownership concentration on credit allocation efficiency of banks

in Pakistan.

Table 2. Ownership Concentration and Credit Allocation Efficiency

Sr. No. Independent Variables Industry Credit Growth

1 L. 1 -0.108*** -0.102*** -0.0926***

2 OC -0.0461*** -0.0460*** -0.0829***
3 HVA -1.051*** -4.216***
4 OC* HVA 0.0811***
5 Size 0.247*** 0.271*** 0.332***
6 Growth 0.0113** 0.00932 0.00622
7 Equity/Assets -11.98*** -11.90*** -9.490***
8 GDP Growth t-1 0.244*** 0.223*** 0.224***
9 Inflation Rate t-1 -0.179*** -0.171*** -0.165***

No. of Obs. 1994 1994 1994

Number of groups 216 216 216
Number of Instruments 100 101 102
GMM-STYLE Instruments 1,5,6,7 1,5,6,7 1,5,6,7
IV-STYLE Instruments 2,8,9 2,3,8,9 2,3,4,8,9
Arellano-Bond test for AR(2) in first 0.00 0.00 0.00
differences ( z ; Pr > z) 0.00 0.003 0.001
Sargan Test of overid. Restrictions 0.00 0.00 0.01
* p<0.05, ** p<0.01, *** p<0.001

In column 1 simple panel data regression results are reported with industry credit growth as dependant

variable and ownership concentration (OC) as independent variable along with other control variables. In

12
column 2, independent dummy variable HVA is included in regression. In column 3 moderating effects

are captured by adding interaction term of OC*HVA in regression.

The results in column 1 show that Ownership concentration has a negative impact on industry credit

growth. This evidence is in line with the evidence provided by Marchica et al., (2013). In column 2,

ownership concentration and HVA both has significant negative impact on industry credit growth. It

means that the industries with value addition higher than the average value addition by other industries in

previous year receive less credit. In column 3, the interaction term OC*HVA is significantly positive

while ownership concentration and HVA remain negative. The sum of coefficients of OC and OC*HVA

is negative but too small. This indicates that even if ownership concentration considers value addition by

industries and gives credit growth to higher value addition industries but overall impact on credit growth

is negative. Size, Bank growth and GDP growth rate has significantly positive effect on Industry credit

growth. Equity to asset ratio and inflation rate has a significant negative impact on industry credit growth.

4.2 Type of Ownership, credit growth and credit allocation efficiency

Table 3 presents the results of impact of type of ownership on credit growth.

Table 3. Type of ownership and Credit Growth

Sr. No. Independent Variable Total Credit Public Credit Private Credit
Growth Growth Growth

1 L. 0.251 6.327*** 0.163***

2 FOR -0.103*** -0.117 -0.0599***
3 GOV -0.0770*** -0.112*** -0.0759***
4 INST -0.0766*** -0.507*** -0.0530***
5 FAM 0.0589*** 0.325*** -0.0155**
6 Size 0.260*** 0.695* 0.251***
7 Growth 0.0984** 1.179*** -0.0267
8 Equity/Assets 1.033 -14.56 -0.428
9 GDP Growth t-1 -0.0337* -0.689*** 0.0205
10 Inflation Rate t-1 0.00502 0.294*** -0.0164**

No. of Obs. 252 252 252

Number of groups 16 16 16
Number of Instruments 188 188 188
GMM-STYLE Instruments 1, 6, 7, 8 1, 6, 7, 8 1, 6, 7, 8
IV-STYLE Instruments 2, 3, 4, 5, 9, 10 2, 3, 4, 5, 9, 10 2, 3, 4, 5, 9, 10
Arellano-Bond test for AR(2) in first 0.00 0.00 0.00
differences ( z ; Pr > z) 0.003 0.002 0.001
Sargan Test of overid. Restrictions 0.00 0.00 0.00
* p<0.05, ** p<0.01, *** p<0.001

13
The results show that government and institutional ownership has a negative impact on total credit growth

regardless of the fact that whether it is private or public sector credit growth. Foreign ownership has

negative impact on total credit growth and private sector credit growth. However, family ownership has

positive impact on public sector credit growth and negative impact on total credit growth and private

sector credit growth. Size and growth has significant positive impact on total growth while GDP has

negative impact on total credit growth.

Table 4 presents the results of impact of type of ownership on credit allocation efficiency.

Table 4. Type of Ownership and Credit Allocation Efficiency

Sr. Independent Variables Industry Credit Growth
No.

1 L. -0.122*** -0.111*** -0.082*** -0.107*** -0.106***

2 FOR -0.077*** -0.021***
3 GOV -0.082*** -0.044***
4 INST -0.076*** -0.019***
5 FAM 0.0094*** 0.046***
6 FOR*HVA 0.011***
7 GOV*HVA 0.036***
8 INST*HVA 0.026***
9 FAM*HVA -0.043***
10 HVA -1.369*** -1.82*** -1.752*** -1.097***
11 Size 0.426*** 0.223*** 0.23*** 0.218*** 0.177***
12 Growth 0.0166** 0.0259*** -0.035*** 0.00153 0.021*
13 Equity/Assets -17.77*** -9.371*** -13.7*** -9.183*** -9.107***
14 GDP t-1 0.340*** 0.192*** 0.216*** 0.194*** 0.228***
15 Inf. Rate t-1 -0.183*** -0.202*** -0.176*** -0.198*** -0.207***

No. of Obs. 1631 1944 1944 1944 1944

Number of groups 160 154 154 150 145
Number of Instruments 213 150 150 152 156
GMM-STYLE Instruments 1, 11-13 1, 11-13 1, 11-13 1, 11-13 1,11-13
IV-STYLE Instruments 2,-5,14,15 2,6,10,14, 3,7,10,14, 4,8,10,14, 5,9,10,14,
15 15 15 15
Arellano-Bond test for AR(2) 0.00 0.00 0.00 0.00 0.00
in first differences ( z ; Pr > z) 0.001 0.001 0.00 0.00 0.00
Sargan Test of overid. 0.00 0.00 0 0.00 0.00 0.00
Restrictions
* p<0.05, ** p<0.01, *** p<0.001

The results show that foreign, government and institutional ownership has negative impact on industry

credit growth. Family ownership has a positive impact on industry credit growth. In column 2-5, HVA is

negative which indicates that in Pakistan the industries contributing higher value addition do not receive

higher credit from banks.

14
In column 2, 3, 4 and 5 respectively, interaction terms FOR*HVA, GOV*HVA and INST*HVA are

significantly positive and FAM*HVA is significantly negative. To explain these interaction terms we

calculate the overall impact by adding coefficients of type of ownership to their respective interaction

terms in each regression. The results show that foreign and government ownership has a negative impact

on credit growth of industries with higher value addition. However, institutional and family ownership

has a positive impact on credit growth of industries with higher value addition.

5. Conclusion

This paper examines the impact of ownership structure of banks on credit allocation efficiency in

Pakistan. The results provide that as ownership concentration prevails in the banking sector of the country

it has detrimental effects on total credit growth as well as credit allocation efficiency in Pakistan. Further

analysis show that generally all types of ownership has negative impact on credit growth except family

ownership. The overall impact of type of ownership on credit allocation efficiency of banks considering

HVA of industries is negative for government and foreign ownership and positive for institutional and

family ownership. We conclude that an increase in ownership concentration in every type of ownership

has hampered credit allocation efficiency in Pakistan.

15
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