DETERMINANTS OF BANKS PROFITABILITY: EVIDENCE FROM BANKS OF PAKISTAN

Abstract

Banks as intermediaries' money resources besides the institutions like investment stock market and insurance markets are considered as the main pillars of financial markets. The banks contribute to economic growth of the country by making funds available for investors to borrow as well as financial deepening in the country. Commercial Banks profitability is important because the soundness of an industry is closely connected to soundness of the whole economy. Profitability of the banking sector is also central as the well-being of the industry is closely associated with the wellness of the whole economy in general. Thus, a proficient and productive banking sector is able and better placed to endure negative economic shocks the profitability of financial institution is affected by numerous factors. Hence the present research aim to investigate the determinateness that effect the profitability of commercial banks by selecting UBL & ABL commercial banks for the period of 2017-2021.The secondary data has been taken in order to find out the results of this study in which profitability has been taken as a dependent variable and capital adequacy, loan to deposit, bank size, GDP, inflation and interest rate taken as independent variables. The performance of the banks was measured through return on assets and the degree of association of internal and external factors with the profitability was determined through regression analysis. The results showed that there is a positive and significant effect of capital adequacy, bank size and loan to deposit on profitability and has a negative and significant effect of inflation, GDP and interest on profitability. The study recommended that managers of banks to develop effected policies to ensure they to reduce the level of nonperforming loans and that bank should effectively manage their operational expenses and costs to ensure that their banks are efficient and to maximize profits. The study also recommended that regulatory authorities like the central bank of Kenya should develop effective policies on capital adequacy, liquidity and credit risk management to ensure that banks are in a position where they can enhance their profitability.