Abstract:
Financial institutions play a significant role in the stable growth of a country’s economy. In
developing countries like Pakistan, sound and efficient performance of banking institutions can
guarantee significant improvement in country’s economic statistics.
Lending and borrowing ofmoney among clients, converting deposits into profitable investments,
providing rapid and effective services to customers, and funding the governmental agencies for
various initiatives are few major roles performed by the banks. Banks, therefore, are partially
responsible for well-being of all other institutions in the country. For the smooth running of
banicing institutions, managers and policy makers must take into consideration various micro and
macro determinates which can leave adverse effects on the profitability ofbanks.
This research study is an effort to determine the positive and negative impact of internal
determinants of banks over their profitability outcomes. Banking institutions of Pakistan has been
selected to evaluate how these factors leave positive or negative impact on the sound performance
of banks.
Deposits concentration, Advances concentration, Credit risk, Liquidity, Bank size and Capital
adequacy ratio are the selected internal factors. Return on Assets, Return on Equity and Net interest
margin are the selected dependent factorsto measure the bank’s performance. Regression analysis,
Fixed, and Random effect model has been tested along with performing Hausman test. The
statistical results obtained from the research study are clearly an indication that these internal
variables need to be controlled due to their varying effects on the profitability ofbanks measured
by ROA, ROE and NIM.
