Non-Performing Loans and Financial Stability of Banking Sector in Pakistan: Explanatory Power of Macroeconomic Variables

Abstract

This thesis presents new empirical facts of financial stability in relations to non-performing loans (NPL) and macroeconomic variables in Pakistan. Data is collected from annual reports of selected ( 18) banks and macroeconomic variables for the period of I 1 years (20 I 0-2020). This thesis is conducted in two phases. In the first phase it calculates the financial stability of banks in Pakistan by taking two proxies of financial leverage and liquidity of banks. And in the second phase, financial stabilities are regressed with NPL and macroeconomic variables such as GOP, unemployment, inflation and exchange rate of Pakistan. Different statistical techniques are applied on the data. Descriptive statistics, correlation analysis and panel regression models are applied to analyze the data. The results report that NPL and macroeconomic variables (Inflation and Unemployment) shows a negative but significant effect on Banks Stability in Pakistan whereas GOP and exchange rate shows a significant and positive affect on bank stability in Pakistan