IMPACT OF EXTERNAL FACTORS ON PROFITABILITY OF BANKING SECTOR OF PAKISTAN

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.