determinants of profitability of TOP 5 COMMERCIAL BANKS OF PAKISTAN

Abstract

The purpose of this study is to determine the determinants of profitability of top 5 commercial banks in Pakistan. We used regression analysis to come up with the relationship of independent variables with dependent variable i.e., Profitability. The independent variables used are size, ADR, CASA and NPLs. The time horizon for this study is from 2009-2011. We have used Net interest margin as a proxy for profitability and total deposit for size, the other 3 variables are self explanatory. Due to high correlation of size with CASA, we have dropped size in the second model. Our second model is better than the previous 4 variable model as the adjusted R- square is 91% in the second model compared to 90.5% in the first one. Note that both the model are significant at 1 % alpha. In both models, we have found CASA to be positively related with profitability and ADR to be negatively related with profitability. Both the results are statistically significant at 1% alpha. NPLs and size are found to have negative relation with profitability but it is not statically significant at 10% alpha.