Profitability of the Banking Sector of Pakistan: Panel Evidence from Bank-Specific, Industry-Specific and Macroeconomic Determinants

Raza, Syed Ali and Jawaid, Syed Tehseen and Shafqat, Junaid (2013): Profitability of the Banking Sector of Pakistan: Panel Evidence from Bank-Specific, Industry-Specific and Macroeconomic Determinants.

Abstract

This study investigates determinants of banks’ profitability in Pakistan by using the panel data of 18 banks from the period of 2001 to 2010. Pedroni panel cointegration results confirm that there exists valid long run relationship between considered variables. Results of random effects model suggest negative and significant effect of bank size, credit risk, liquidity, taxation, and nontraditional activity with profitability. Conversely, positive and significant effects of capitalization, banking sector development and inflation have been found with profitability. However, the stock market development has negative but insignificant relationship with profitability. Sensitivity analyses confirm that the results are robust.

• Item Type: MPRA Paper
• Language: English
• Keywords: Profitability, Banks, Panel Data, Credit Risk
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; L - Industrial Organization > L8 - Industry Studies: Services

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