Determining the Factors Effecting the Profitability of Banking Sector in Pakistan

Abstract

Purpose The aim of this research is to explore the impact of determinants of profitability in the banking industry of Pakistan. Banking plays a significant role in channelizing money, supplying to the required one and generating profitability for its stakeholders. Banking on one hand, is central operation for every business and every person whereas, on the other hand, it plays role in managing the day to day financial needs to the public and government at large. Thus, it becomes integral to determine the factors which have an impact on the sector’s profitability. Methodology: The research follows a quantitative methodology as it requires to measure the impact on profitability while, the research follows a deductive approach which aids in presenting a conclusive. For this study top seven banks performing in the banking industry has been selected for review while, data for the period of 7 years for each bank has been taken i.e. from (2012 to 2018). The data for the research is being collected through secondary sources i.e. financial statements of these banks. The research variables for this study includes (Size, NPL, CAR Ratio, Deposits & Interest rates) while, the most interesting aspect ofthis study is that, it explores the profitability through using ROA as well as, ROE both. The data for this research has been analyzed through Pearson correlation tests, Regression tests and, descriptive tests. Findings: The findings from the test shows that, Size, NPL & CAR ratio has significant impact on profitability ofthe bank when it is measured through ROA whereas, on the other hand, Sze, CAR Ratio & Deposits have shown significant impact on the bank’s profitability. Among all CAR & Deposits have the highest impact on profitability when it comes to measure it with ROE whereas, on the other hand, CAR and NPL are the highest influences of profitability when it comes to ROA.