Determinants of Commercial Banks Profitability in Pakistan

Abstract

Introduction: In Pakistan, the banking performance is influenced by deregulation, financial modernization and technological improvement. Financial sector is the back bone of the sustainable economic growth. So it is very important to assess the negative shocks in order to maintain the financial stability in Pakistan. Literature Review: The chapter examines the previously conducted researches on the topic of profitability Determinants in Pakistani banks. After reviewing the literature following variables have been identified size, capital, Loan, deposits, GDP&inflation. Local as well as internal researches have been included in order to broaden the scope of literature. Research Methodology: The research follows a Quantitative research design while the data for this research is collected from Secondary sources. This study is conducted to find out the main determinants of banks profitability considering the bank specific variables i.e.SIZE, CAPITAL, LOAN, DEPOSITS, GDP, and INFLATION. Conclusion: The analysis has been conducted on 6 banks on the basis of availability of data over the period 2008-2012. The findings of this study indicated that all internal variables, except CAPITAL, have significant relationship with profitability of banks in Pakistan. The recommendations suggested include increasing the loan to deposit ratio, Increase in size and Reliability on deposits for funding.