Internal Factors, External Factors and Bank’s Profitability

A developed banking sector provides the impetus for the economy to grow. However, in order to maintain financial stability and sustain negative shocks, it is important to understand the factors that influence the profitability of banks. The aim of the study was to analyse the effect of internal and external factors on the profitability of banks in Pakistan for the period 2007-2015. Fixed effects model was used to analyse the effect of internal and external factors on the profitability of banks in Pakistan. The findings of the study revealed that among internal factors only bank size and asset composition significantly influences the profitability of banks whereas in the external determinants only real interest rates and GDP growth rates has a significant effect on the profitability of banks.