The Impact of Macroeconomic Variables on the Profitability of Banks in Pakistan

Abstract

This research investigates the impact of macroeconomic factors on the profitability of Pakistan's largest conventional banks from 2014 to 2023. Utilizing annual panel data, the research focuses on ten major banks. Independent variables include interest rates, GDP growth, and inflation rates, while dependent variables comprise return on equity (ROE), return on assets (ROA), and earnings per share (EPS). Bank size and capital adequacy ratio (CAR) were controlled for in the analysis. Methods employed include descriptive statistics, correlation analysis, and regression models. Findings indicate a significant negative relationship between inflation and interest rates with ROA, ROE, and EPS, while GDP, bank size, and CAR exhibit a positive and significant association with all three profitability measures.