Bank Specific and Macroeconomic Determinants of Bank Profitability
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Published:
2024-04-12
Keywords:
Profitability, Inflation, Random Effect, Hausman
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Abstract
This study investigated the profitability of the banking sector in Pakistan. It evaluated the effects of both internal (bank-specific) and external (macroeconomic) factors on bank’s profitability from 2006 to 2013 period. The data of 34 commercial banks operating in Pakistan has collected. The data was balanced panel data and analyzed by random effect panel data regression analysis. Results confirmed that bank size and non-interest income had positive significant relationship on banking profitability. Deposit had negative significant relationship with banking profitability because of maintaining high liquidity, which increased cost of holding asset that ultimately, decrease profitability. As major participant, banks of Pakistan banking sector were small size banks so most important factor out of significant factors were income from non-interest facilities provided by these commercial banks. By increasing such facilities increased the bank’s customer base, which ultimately increased bank’s profitability. Macro-economic factors showed no significant effect on bank’s profitability.
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How to Cite
Bank Specific and Macroeconomic Determinants of Bank Profitability. (2024). Journal of Management Info, 3(2), 14-18. https://doi.org/10.31580/jmi.v10i1.46
References
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KOSMIDOU, K. 2008. The determinants of banks' profits in Greece during the period of EU financial integration. Managerial Finance, 34, 146-159.
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MAMATZAKIS, E. & REMOUNDOS, P. 2003. Determinants of Greek commercial banks profitability, 1989-2000. Spoudai, 53, 84-94.
MOLYNEUX, P. & THORNTON, J. 1992. Determinants of European bank profitability: A note. Journal of banking & Finance, 16, 1173-1178.
NACEUR, S. B. 2003. The determinants of the Tunisian banking industry profitability: panel evidence. Universite Libre de Tunis working papers.
PASIOURAS, F. & KOSMIDOU, K. 2007. Factors influencing the profitability of domestic and foreign commercial banks in the European Union. Research in International Business and Finance, 21, 222-237.
SHORT, B. K. 1979. The relation between commercial bank profit rates and banking concentration in Canada, Western Europe, and Japan. Journal of Banking & Finance, 3, 209-219.
SMIRLOCK, M. 1985. Evidence on the (non) relationship between concentration and profitability in banking. Journal of Money, Credit and Banking, 69-83.
ALKASSIM, F. A. 2005. The profitability of Islamic and conventional banking in the GCC countries: A comparative study. Journal of Review of Islamic Economics, 13, 5-30.
ANGBAZO, L. 1997. Commercial bank net interest margins, default risk, interest-rate risk, and off-balance sheet banking. Journal of Banking & Finance, 21, 55-87.
ATAULLAH, A., COCKERILL, T. & LE, H. 2004. Financial liberalization and bank efficiency: a comparative analysis of India and Pakistan. Applied Economics, 36, 1915-1924.
BARAJAS, A., STEINER, R. & SALAZAR, N. 1999. Interest spreads in banking in Colombia, 1974-96. IMF Staff Papers, 196-224.
BOURKE, P. 1989. Concentration and other determinants of bank profitability in Europe, North America and Australia. Journal of Banking & Finance, 13, 65-79.
BURKI, A. A. & NIAZI, G. 2010. Impact of financial reforms on efficiency of state-owned, private and foreign banks in Pakistan. Applied Economics, 42, 3147-3160.
CLAESSENS, S., DEMIRGÜÇ-KUNT, A. & HUIZINGA, H. 2001. How does foreign entry affect domestic banking markets? Journal of Banking & Finance, 25, 891-911.
DEMIRGÜÇ-KUNT, A. & HUIZINGA, H. 1999. Determinants of commercial bank interest margins and profitability: some international evidence. The World Bank Economic Review, 13, 379-408.
DIETRICH, A. & WANZENRIED, G. Year. What determines the profitability of commercial banks? New evidence from Switzerland. In: 12th Conference of the Swiss Society for Financial Market Researches, Geneva. Discussion Paper, 2009.
GÜNGÖR, B. 2007. Türkiye’de faaliyet gösteren yerel ve yabancı bankaların kârlılık seviyelerini Etkileyen faktörler: Panel veri analizi. Iktisat Isletme ve Finans, 22, 40-63.
GURU, B. K., STAUNTON, J. & BALASHANMUGAM, B. 2002. Determinants of commercial bank profitability in Malaysia. Journal of Money, Credit, and Banking, 17, 69-82.
HASSAN, M. K. & BASHIR, A.-H. M. Year. Determinants of Islamic banking profitability. In: 10th ERF Annual Conference, Morocco, 2003. 16-18.
JAVAID, S. 2011. Determinants of bank profitability in Pakistan: Internal factor analysis. Department of Management Sciences. Correspondence concerning this article should be addressed to Khalid Zaman, Department of Management Sciences, COMSATS Institute of Information Technology.
KHAN, A. 2014. How Does Stock Prices Respond to Various Macroeconomic Factors? A Case Study of Pakistan. Journal of Management Info, 4, 75-95.
KHAN., S., ANUAR, M. A., RAMAKRISHNAN, S., MALIK, M. F. & KHAN., F. 2016. Short-Run Underpricing of Initial public Offering (IPOs): A conceptual Review. International Business Management, 10, 842-848.
KOSMIDOU, K. 2008. The determinants of banks' profits in Greece during the period of EU financial integration. Managerial Finance, 34, 146-159.
MALIK, M. F., ANUAR, M. A., KHAN, S. & KHAN, F. 2014a. Mergers and Acquisitions: A Conceptual Review. International Journal of Accounting and Financial Reporting, 4.
MALIK, M. F., KHAN, S., KHAN, M. I. & KHAN, F. 2014b. Interest Rate and Its Effect on Bank’s Profitability. J. Appl. Environ. Biol. Sci, 4, 225-229.
MAMATZAKIS, E. & REMOUNDOS, P. 2003. Determinants of Greek commercial banks profitability, 1989-2000. Spoudai, 53, 84-94.
MOLYNEUX, P. & THORNTON, J. 1992. Determinants of European bank profitability: A note. Journal of banking & Finance, 16, 1173-1178.
NACEUR, S. B. 2003. The determinants of the Tunisian banking industry profitability: panel evidence. Universite Libre de Tunis working papers.
PASIOURAS, F. & KOSMIDOU, K. 2007. Factors influencing the profitability of domestic and foreign commercial banks in the European Union. Research in International Business and Finance, 21, 222-237.
SHORT, B. K. 1979. The relation between commercial bank profit rates and banking concentration in Canada, Western Europe, and Japan. Journal of Banking & Finance, 3, 209-219.
SMIRLOCK, M. 1985. Evidence on the (non) relationship between concentration and profitability in banking. Journal of Money, Credit and Banking, 69-83.