Abstract:
Purpose: The objective of this research is to examine the role of oil prices and liquidity risk,
CE, GDP and inflation on the BP of commercial banks of Pakistan.
Methodology: Financial statements and annual reports were used for data gathering of the
bank-specific indicators and variables of 15 private commercial banks in Pakistan from 2006
to 2021. World Development Indicator (WDI) database ofthe World Bank was used to collect
yearly data on GDP and inflation while Data of crude oil prices were gathered from the West
Texas Intermediate (WTI) database. The study has used correlation analysis, cointegration
analysis, Hausman test and pooled OLS analysis based on random-effect estimation were
employed for data analysis using EViews 9.
Findings: The results showed that oil price has a positive but statistically insignificant effect
on bank profitability. Liquidity risk has a positively significant effect on bank profitability.
Cost-efficiency has a negatively significant effect on bank profitability. Economic growth has
a negative but statistically insignificant effect on bank profitability. Lastly, inflation has a
negatively significant effect on bank profitability.
Limitations: The study did not consider any moderating variables due to lack of empirical and
theoretical evidence. Specifically, transaction cost theory has been used for theoretical
underpinnings while other theoretical aspects were not taken into consideration for
perspective-taking. The study has considered only commercial banks of Pakistan and has not
taken Islamic banks for specific and generalized outcomes of a particular banking segment.
Implications: Banks should empower their policies and easy their procedures that encourage
investors to large-scale deposits and that is somehow reduce their liquidity risks. Discouraging
risky loans and lending to businesses that have weak credit rating history or drowning
industrial trends of such companies and enterprises. Keeping an eye on the global crisis and
financial constraints to developing countries, commercial banks of Pakistan should primarily
focus on mitigating their liquidity risks to maintain their operations and forgoing strategies in
the larger and longer perspective.
