Impact of Asset Growth and Equity Multiplier on the Financial Performance of Microfinance Banks of Pakistan

Abstract

The present study investigates the relationship between asset growth and equity multiplier on the financial performance of microfinance banks of Pakistan. The study considers two variables, which relate to the profitability (a dependent factor): return-on assets (ROA) and return-on-equity (ROE). The independent factor on the other hand, Asset growth (AG) and Equity Multiplier (EM). For the purpose of the research total 9 microfinance banks of Pakistan are engaged that are comes under the supervisions of State bank of Pakistan. 10 years data from 2010-2019 is conducted from the annual reports of the banks. The type of data used in the research is secondary data. The results are revealed by using three different tests including the descriptive analysis, correlation analysis and panel square regression method. The E-views software is used to conduct the results. Some authors suggest that asset growth and equity multiplier has positive impact on financial performance of banks, while the some authors suggests that asset growth and equity multiplier has its negative impact on the financial performance of banks .This study finding suggest that asset growth has its significant positive relationship on return on asset and return on equity , while equity multiplier has its significant negative relationship on return on asset and return on equity , Finally on the basis of results conducted we are saying that the asset growth has its significant positive relationship on financial performance of microfinance banks of Pakistan and equity multiplier has negative relationship on the financial performance of microfinance banks of Pakistan . The study is equally beneficial and useful for the future researchers and for the microfinance banks of Pakistan to improve their profitability by reducing the equity and increasing asset growth.