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Impact of Volatility in Macroeconomic Factors on the Lending Behavior of Domestic and Foreign Banks in Pakistan

Author

Listed:
  • Iftikhar-ul-Amin

    (Institute of Management Sciences, Peshawar)

  • Nadia Iftikhar

    (Institute of Management Sciences, Peshawar)

  • Muzahir Ali

    (Institute of Management Sciences, Peshawar)

Abstract

This paper aims to determine the impact of variations in Macroeconomic variables on the lending behavior of local and foreign banks in Pakistan. Fluctuations in economy affect the behavior of banks and other financial institutions. Positive signals regarding economy encourage the banks to lend more and vice versa. R-square value for the foreign banks was higher than that of local banks concluding that foreign banks are more affected by the macroeconomic indicators as compare to domestic banks. Percentage change in advances of local and foreign banks are studied as dependent variable while GDP, Inflation, Interest Rate, Money Supply and Exchange rate as independent variables. Seven years data (2005-2011) is analyzed using Ordinary Least Square (OLS) technique. Results indicated that interest rate is insignificant for domestic banks while GDP is insignificant for local banks' advances.

Suggested Citation

  • Iftikhar-ul-Amin & Nadia Iftikhar & Muzahir Ali, 2012. "Impact of Volatility in Macroeconomic Factors on the Lending Behavior of Domestic and Foreign Banks in Pakistan," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 4(2), pages 26-43, October.
    • Handle: RePEc:bec:imsber:v:4:y:2012:i:2:p:26-43
    DOI: dx.doi.org/10.22547/BER/4.2.3
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    More about this item

    Keywords

    Macroeconomic variables; fluctuations; GDP; money supply;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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