Abstract:
Purpose. The banking sector of Pakistan has been performing its vital role in economic
development of the country and has contributed towards the growth and development of the
economy. Pakistan is a developing country, and the various sectors are contributing towards its
development. The purpose of this research was to identify the relationship between inflation,
Interest Rate, Exchange Rate and foreign remittances held by country with the profitability of
banks. Banking sector has an important role on financial stability of any economy.
Research Methodology: This research was conducted on the 06 Banks financial data which
includes HBL, MCB, ABL, UBL, NBP and BAHL as they hold more than 50% of the deposit of
the country.
Linear regression was used to test the data keeping Inflation, Interest Rate, Exchange Rate and
foreign remittances as an Independent variable and Profitability i.e Net Income as dependent
variables. Secondary data is used to complete the study and analyse the relationship of income
using it as the bank’s profitability measure to determine how these variables are affected by the
current inflation, Interest Rate, Exchange Rate, and foreign remittances of the country, and the
profitability of banks which is collected through their official sites.
Findings Of The Study: This research was concluded that inflation has a significant
negative impact to the profitability of banks, interest has no significant impact on profitability
whereas the exchange rate and Foreign remittances have significant positive relationship with the
profitability.
Practical Implications: This paper would help the banking sector decision makers to
identify the external factors causes on the banks profitability.
