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Examining the contributing factors of bank profitability in south Asian countries: A case of Pakistani banking sector

Author

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  • Naseem Ashraf

    (Department of management sciences, Lahore Garrison University, Lahore, Pakistan)

  • Qurra Tul Ain Butt

    (Department of management, Lahore Garrison University, Lahore, Pakistan)

Abstract

Using panel data approach in Pakistani banking sector for 7 year time period from 2010 to 2016, the aim behind this study was to examine the bank specific, industry specific and macroeconomic determinants of bank profitability.Quantitative research design has been employed with OLS, random effect model and fixed effect model, moreover regression and correlation analysis has been used in this study.The results of this study shows that rise in NPLs ratio, Loan loss provision, inflation and exchange rate reduces the profitability of banks while increase in market power, bank size, capital adequacy enhance the profitability. The deleterious impact of different indicators on profitability of banks shows that distressed banking sector can cause hindrance in not only growth of financial sector but can also cause the poor growth of economy. Outcomes of the study emphasis on the need of clear-out of NPLs to keep financial sector sound as NPLs cause high loan loss provision which effect the capitalization of banks that ultimately effect the economic growth of financial as well as other sectors of economy. Banking supervisory agencies should pay attention towards banking monitory policies and banks macroeconomic policies. This study examine the impact of all three typesof indicator (Bank specific, industry specific and macroeconomic) on banks profitability by employing latest data from 2010 to 2016 in which major reforms were held in banking industry of Pakistan because there exist rare studies with all three types of variables with latest figures.

Suggested Citation

  • Naseem Ashraf & Qurra Tul Ain Butt, 2017. "Examining the contributing factors of bank profitability in south Asian countries: A case of Pakistani banking sector," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 6(5), pages 01-12, July.
    • Handle: RePEc:rbs:ijfbss:v:6:y:2017:i:5:p:01-12
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    References listed on IDEAS

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    7. Brunilda Duraj & Elvana Moci, 2015. "Factors Influencing the Bank Profitability - Empirical Evidence from Albania," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(3), pages 483-494.
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