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Analysis of Some Inner Factors Affecting the Lending Rate and Commercial Bank Behavior: (An Empirical Study Based on the Commercial Banking Sector of Pakistan)

Author

Listed:
  • Ali Zulfiqar

    (Finance Scholar in University of Gujrat, Gujrat, Pakistan)

  • Bashir Zahid
  • Arshad Muhammad Usman
  • Ghazali Ahmed
  • Asif Muhammad

    (Lecturer Department of Commerce, University of Gujrat, Gujrat, Pakistan)

  • Khan Fahad Najeeb

    (Lecturer Department of Business Administration, University of Sargodha, bakhar campus, Sargodha, Pakistan)

Abstract

This research study aims to investigate the potential inner factors of the lending rate in the commercial banking sector of Pakistan. For this purpose, seven bank-specific explanatory variables (capital adequacy, management efficiency, liquidity, asset quality, investment to asset, loan to asset and deposit to asset ratios) were selected to determine their impact on lending behavior. Panel data techniques were emplyed on secondary data collected from the annual financial reports from a sample of ninteen major commercial banks over a period of 2007 to 2014. For the purpose of analysis, descriptive statistics, Pearson correlation and panel data techniques for regression analysis such as the fixed effect regression models were considered after conforming to the Hausman specification (1978) test. The findings of this study revealed that only four out of seven explanatory variables (ratio of investment to total assets, deposit to asset, loan to asset and liquidity ratio) have a significant relationship with lending rate. Two of the significant determinants (liquidity ratio and investment to asset ratio) are positively correlated while the remaining two significant explanatory variables (loan to asset ratio and deposit to asset ratio) are found negatively correlated with lending rate. The findings of the study are applicable to the banking sector of Pakistan. The current study ignored the use of macro factors like GDP and inflation, etc. which could be used in future research.

Suggested Citation

  • Ali Zulfiqar & Bashir Zahid & Arshad Muhammad Usman & Ghazali Ahmed & Asif Muhammad & Khan Fahad Najeeb, 2016. "Analysis of Some Inner Factors Affecting the Lending Rate and Commercial Bank Behavior: (An Empirical Study Based on the Commercial Banking Sector of Pakistan)," Financial Internet Quarterly (formerly e-Finanse), Sciendo, vol. 12(4), pages 111-119, December.
    • Handle: RePEc:vrs:finiqu:v:12:y:2016:i:4:p:111-119:n:4
    DOI: 10.1515/fiqf-2016-0013
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    References listed on IDEAS

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