Issue
Authors retain the copyright without restrictions for their published content in this journal. HSSR is a SHERPA ROMEO Green Journal.
Publishing License
This is an open-access article distributed under the terms of 
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
Abstract
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.
Keywords
Download Citation
Endnote/Zotero/Mendeley (RIS)BibTeX
References
Abbasoglu, O. F., Aysan, A. F., &Gunes, A. (2007). Concentration, competition, efficiency, and profitability of the Turkish banking sector in the post-crisis period. Banks & bank systems, (2, Iss. 3), 106-115.
Aburime, T. (2008). Determinants of bank profitability: Macroeconomic evidence from Nigeria. Available at SSRN. https://doi.org/10.2139/ssrn.1231064 DOI: https://doi.org/10.2139/ssrn.1231064
Aigner, D., Lovell, C. K., & Schmidt, P. (1977). Formulation and estimation of stochastic frontier production function models. Journal of econometrics, 6(1), 21-37. https://doi.org/10.1016/0304-4076(77)90052-5 DOI: https://doi.org/10.1016/0304-4076(77)90052-5
Albertazzi, U., & Gambacorta, L. (2009). Bank profitability and the business cycle. Journal of Financial Stability, 5(4), 393-409. https://doi.org/10.1016/j.jfs.2008.10.002 DOI: https://doi.org/10.1016/j.jfs.2008.10.002
Ali, K., Akhtar, M. F., & Ahmed, H. Z. (2011). Bank-specific and macroeconomic indicators of profitability-empirical evidence from the commercial banks of Pakistan. International Journal of Business and Social Science, 2(6), 235-242.
Anbar, A., &Alper, D. (2011). Bank specific and macroeconomic determinants of commercial bank profitability: Empirical evidence from Turkey. Business and economics research journal, 2(2), 139-152.
Anjom, W., & Karim, A. M. (2016). Relationship between non-performing loans and macroeconomic factors with bank-specific factors: a case study on loan portfolios–SAARC country's perspective. ELK Asia Pacific Journal of Finance and Risk Management, 7(2), 1-29.
Ashraf, M., Khan, B., & Tariq, R. (2017). Corporate Social Responsibility Impact on Financial Performance of Bank’s: Evidence from Asian Countries. International Journal of Academic Research in Business and Social Sciences, 7(4), 618-632. https://doi.org/10.6007/IJARBSS/v7-i4/2837 DOI: https://doi.org/10.6007/IJARBSS/v7-i4/2837
Asutay, M., & Izhar, H. (2007). Estimating the profitability of Islamic banking: evidence from bank Muamalat Indonesia. Review of Islamic Economics, 11(2), 17-29.
Athanasoglou, P. P., Brissimis, S. N., & Delis, M. D. (2008). Bank-specific, industry-specific and macroeconomic determinants of bank profitability. Journal of international financial Markets, Institutions, and Money, 18(2), 121-136. https://doi.org/10.1016/j.intfin.2006.07.001 DOI: https://doi.org/10.1016/j.intfin.2006.07.001
Athanasoglou, P., Delis, M., &S taikouras, C. (2006). Determinants of bank profitability in the South Eastern European region. MPRA Paper No. 10274, posted 20 Sep 2008 04:31 UTC.
Bapat, D. (2018). Profitability drivers for Indian banks: a dynamic panel data analysis. Eurasian Business Review, 8(4), 437-451. https://doi.org/10.1007/s40821-017-0096-2 DOI: https://doi.org/10.1007/s40821-017-0096-2
Curak, M., Pepur, S., &Poposki, K. (2013). Determinants of non-performing loans–evidence from Southeastern European banking systems. Banks & bank systems, (8, Iss. 1), 45-53.
Curak, M., Poposki, K., &Pepur, S. (2012). Profitability determinants of the Macedonian banking sector in a changing environment. Procedia-Social and Behavioral Sciences, 44, 406-416. https://doi.org/10.1016/j.sbspro.2012.05.045 DOI: https://doi.org/10.1016/j.sbspro.2012.05.045
Francis, M. E. (2013). Determinants of commercial bank profitability in Sub-Saharan Africa. International journal of economics and finance, 5(9), 134-147. https://doi.org/10.5539/ijef.v5n9p134 DOI: https://doi.org/10.5539/ijef.v5n9p134
Goldberg, L. G., & Rai, A. (1996). The structure-performance relationship for European banking. Journal of Banking & Finance, 20(4), 745-771. https://doi.org/10.1016/0378-4266(95)00021-6 DOI: https://doi.org/10.1016/0378-4266(95)00021-6
Guru, B. K., Staunton, J., & Balashanmugam, B. (2002). Determinants of commercial bank profitability in Malaysia. Journal of Money, Credit, and Banking, 17(1), 69-82.
Haron, S., & Azmi, W. N. W. (2004). Profitability determinants of Islamic banks: A Cointegration approach. In Electronic Version), Islamic Banking Conference, Union Arab Bank, Beirut, Lebanon (pp. 5-7).
Islam, M. A., & Rana, R. H. (2017). Determinants of bank profitability for the selected private commercial banks in Bangladesh: A panel data analysis. Banks & bank systems, (12,№ 3 (cont.)), 179-192. https://doi.org/10.21511/bbs.12(3-1).2017.03 DOI: https://doi.org/10.21511/bbs.12(3-1).2017.03
Karim, B. K., Mohamed Sami, B. A., &Hichem, B. K. (2010). Bank-specific, industry-specific and macroeconomic determinants of African Islamic banks' profitability. International Journal of Business and Management Science, 3(1), 39.
Kosmidou, K., Tanna, S., &Pasiouras, F. (2005). Determinants of profitability of domestic UK commercial banks: panel evidence from the period 1995-2002. In Money Macro and Finance (MMF) Research Group Conference (Vol. 45, pp. 1-27).
Lipunga, A. M. (2014). Determinants of profitability of listed commercial banks in developing countries: Evidence from Malawi. Research Journal of Finance and Accounting, 5(6), 41-49.
Mahmud, K., Mallik, A., Imtiaz, M. F., &Tabassum, N. (2016). The bank-specific factors affecting the profitability of commercial banks in Bangladesh: A panel data analysis. International Journal of Managerial Studies and Research, 4(7), 67-74. https://doi.org/10.20431/2349-0349.0407008 DOI: https://doi.org/10.20431/2349-0349.0407008
Mamatzakis, E., & Remoundos, P. (2003). Determinants of Greek commercial banks, 1989-2000. Spoudai, 53(1), 84-94.
Masood, O., Ashraf, M., & Turen, S. (2015). Bank-specific and macroeconomic determinants of bank profitability: Evidence from Member States of the OIC. Journal of Islamic Financial Studies, 1(01). https://doi.org/10.12785/jifs/010104 DOI: https://doi.org/10.12785/jifs/010104
Molyneux, P., & Thornton, J. (1992). Determinants of European bank profitability: A note. Journal of Banking & Finance, 16(6), 1173-1178. https://doi.org/10.1016/0378-4266(92)90065-8 DOI: https://doi.org/10.1016/0378-4266(92)90065-8
Naceur, S. B. (2003). The determinants of the Tunisian banking industry profitability: Panel evidence. UniversiteLibre de Tunis working papers, 11(3), 317-319.
Riaz, S., & Mehar, A. (2013). The impact of Bank Specific and Macroeconomic Indicators on the Profitability of Commercial banks. Romanian Economic Journal, 16(47).
Staikouras, C. K., & Wood, G. E. (2004). The determinants of European bank profitability. International Business & Economics Research Journal (IBER), 3(6). https://doi.org/10.19030/iber.v3i6.3699 DOI: https://doi.org/10.19030/iber.v3i6.3699
Sufian, F., & Habibullah, M. S. (2009). Determinants of bank profitability in a developing economy: Empirical evidence from Bangladesh. Journal of business economics and management, 10(3), 207-217. https://doi.org/10.3846/1611-1699.2009.10.207-217 DOI: https://doi.org/10.3846/1611-1699.2009.10.207-217
White Gerald, I., Sondhi, A. C., & Fried, D. (2003). The Analysis and Use of Financial Statements, John Wiley & Sons. Inc. The USA.
