The factors that affect the Profitability of Banks in Pakistan

Abstract

Banks as a part of the financial institutions are the main pillar of the economy. In the study, we examine the impact of different internal as well as the external factors that affect the profitability of banks in Pakistan. For this purpose five year (2008-2012) data of the ten commercial banks in Pakistan is taken. In the study five independent and one dependent variable are taken two of which are internal and remaining three are external factors. Internal factors include the corporate taxes, and the inter bank loans while the external factors are inflation, interest rates, and the Gross Domestic Product (GDP). Ordinary Least Square model is applied on the date on the SPSS software. The results of the study shows that out of the five, two independent variables show the strong and the significant correlation on the dependent variable and the other three variables shows weak correlation on the dependent variable. All the five independent variables are positively correlated to the bank profits. Two of these independent variables have strong correlation but the other three have not a very strong correlation with bank profits. If we consider more years’ data, add the other banks, which are not included in the study, and there are many more internal and the external variable which are not included in the study, then the results will become more accurate.