Abstract:
This study has emphasized on assessing the relationship between macroeconomic determinants, credit risk and financial performance in Pakistan. This study has considered GDP, inflation rate, KIBOR, bank size, management efficiency and risky asset as independent variables. Whereas, credit risk has been considered as the mediating variable. However, financial performance has been considered as the dependent variable in this study. Meanwhile, this study has finalized financial performance to testify the relationship between variables mentioned above. The major emphasis in this study has been on assessing the relationship between GDP, inflation rate, KIBOR, bank size, management efficiency and risky asset (independent variables), credit risk (mediating variable) and financial performance (dependent variable) in Islamic banks in Pakistan. Secondary sources of data (annual financial statements) have been used for data collection regarding variables of this study from the period of 2015 – 2019. A sample size of 50 observations has been finalized to represent the entire population. Collected data has then been analyzed through statistical instruments such as correlation and regression by using Strata. Based on the findings, it has been concluded that GDP, inflation rate, KIBOR, bank size, management efficiency and risky asset has significant impact on credit risk, and credit risk has significant impact on financial performance in Islamic banks in Pakistan.
