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THE EFFECT OF MACROECONOMIC & BANK SPECIFIC FACTORS ON BANKS PROFITABILITY: AN EMPIRICAL EVIDENCE FROM BANKING INDUSTRY OF PAKISTAN
Corresponding Author(s) : Khurram Sultan
Humanities & Social Sciences Reviews,
Vol. 8 No. 3 (2020): May
Purpose of the study: In the emerging environment of the banking sector, profitability is the main principle of the banks.The objective of this study to scrutinize the impact of banks on specific indicators such as asset size, credit risk, capital adequacy, and macroeconomic indicator such as the interest rate on the profitability of banks. Profitability is usually shown as a function of internal and external determinants.
Methodology: To consider the determinants of bank’s profitability panel data has been used from 2003 to 2018 which belongs to 17 commercial banks for VIF, LSDVM, and Hausman test. The data is collected from the secondary source through financial reports of the banks. The dependent variable is ROE and the independent variables are in two categories bank-Specific variables and macroeconomic variables and analysis has been carried out in E-views software.
Main Findings: The results reveal that the micro-economic factors that are deposits, asset quality, asset size, and liquidity have a significant impact on the bank’s profitability. While macro-economic factor gross domestic product (GDP) has a positive impact on the bank’s efficiency. However capital adequacy ratio, inflation has a negative effect on the bank’s profitability. Ours inspects give the conclusion that the bank's profitability being resolute by the significantly considered the above factors.
Application of this study: This study contributes toward the banking sector for policymakers in order to construct the best capital configuration of the firm. This study also suggests that which element is having more importance while making capital configuration for the firm.
The originality of this study: Profitability is usually shown as a function of internal and external determinants. The number of studies is available related to other industries but fewer studies are available related to the banking sector of Pakistan so this research work provides the technique while making the best profitability configuration for banks of Pakistan.
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