Nexus between Liquidity and Profitability of Banking Sector: Evidence from Pakistan

Abstract

Study purpose of this research is to examine the empirical relationship for the nexus between liquidity and profitability of Pakistani banks for the period of 2010 to 2019. There is used the annual reports data of Seven schedule banks. 70 observations are used to calculate the findings of this research. ROA (return on asset) and ROE (return on equity) are used to measuring the profitability of banks. On the other hand, Quick Ratio (QR), Capital Ratio (CPR), Liquidity Ratio (LR) and Current Ratio (CR) are used to measuring the liquidity of banks. According to ROA Regression equation model (1) Quick Ratio and Capital Ratio have negative significant relationship with ROA and Liquidity Ratio and Current Ratio have positive significant relationship with ROA. According to ROE Regression equation model (2) Capital Ratio has positive significant and Current Ratio has negative significant relationship with ROE. Quick Ratio and Liquidity Ratio have positive insignificant relationship with ROE. Findings of this research will be helpful for students, fresher masters and researchers.