Factors Affecting the Profitability of Banks in Pakistan

Abstract

This study examines the relationship between bank-specific and external factors on the Banks’ profitability in Pakistan from the time span of 2006 to 2012. In this study, 11 variables have been selected after reviewing relevant past literature. Variables include 1 dependent variable (i.e. Profitability), and 10 independent variables, out of which 7are internal/bank-specific and 3 are external variables. Internal factors include Liquidity, deposits, bank Size, expense management, credit risk, capital, and loans whereas external factors include economic growth (GDP), Interest rate and Inflation.The experimental consequences have shown that internal/Bank specific and external factors have a strong impact on the profitability of banks in Pakistan. In model 1 Independent Variables include Deposits, expense management, credit risk, bank Size, Inflation and Gross Domestic Product has a significant impact on profitability whereas in Model 2 expense management was insignificant