The Profitability of Banking Sector in Pakistan: An Empirical Analysis from 2006-2010

Abstract

Banking sector plays an important role in financial stability of an economy. This study investigates the determinants of profitability of banking sector in Pakistan. For this purpose the data of all Pakistani banks were collected for the period of 2006-2010. We examined the relationship between macroeconomics and bank specific characteristics. To investigate the impact of loans, assets, deposits, equity, economic growth, inflation and market capitalization on profitability measures ROE (return on equity) ROA (return on assets) ROCE (return on capital employed)i and NIM (net interest margin) by using POLS (Pooled ordinary least square). The study found both internal and external factors have strong impact on profitability of overall banking sector. We tested their study on our data and sample of 40 Pakistani banks which shows overall economic condition of banking sector in Pakistan.

Keywords: Financial Institutions, Banks, Profitability, ROA, Bank specific variables, Inflation, Pakistan

JEL Classification: G20, G21