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The significance of the financial sector in the economic growth cannot be denied, and
the banking sector, in its capacity of intermediation between the borrower and the lender,
facilitates the economic activities as a part of the financial sector. Evaluating the financial conditions
and the performance of banks has been an issue of considerable importance in recent
years, particularly in the developing countries. This phenomenon is attributed to the crucial role
of commercial banks in the economy, which is a result of the generally-accepted fact
that commercial banks are the dominant financial institutions and represent the foremost source
of financial intermediation in these countries. The scrutiny of the overall performance of
the banking sector is important to depositors, owners, potential investors, and of course, to
the policy makers, as banks are the effective executors of the monetary policy of the
government.
To establish a better internal control, and thereby increase the performance of the
banks, various financial restructuring reforms have been developed. One of them is the
privatization program—transferring the ownership from public hands to private ones. Such
transformation of ownership is done to enhance competition and efficiency by permitting the market
forces, rather than the administrative forces, to determine the prices. Privatization is used by
the governments to strengthen the financial health and increase profitability, by liberalizing
the interest rates, abolishing limits on credit and monetary policies, establishing
well-defined prudential regulations and governing rules, developing an effective monitoring system
for investments and utilization of funds in profitable opportunities (Khan, 2002). |
