Profitability Outlook: Analyzing Firm and Country Level Drivers in the Banking Sector
Jhansi RaniBoda
Assistant Professor, GITAM School of Business Hyderabad India
Kainat Iftikhar
School of Finance, Central University of Finance and Economics, China
Tanveer Bagh
School of Finance, Central university of Finance and Economics, China
Muhammad NadirShabbir
Department of Theoretical Economics, Renmin University of China, China
Keywords: Bank-specific, financial crisis; Government change; Profitability; Banks, Pakistan
Abstract
This study investigates the determinants of bank profitability at both firm and country levels in Pakistan, with profitability assessed using key indicators: Return on Assets (ROA), Return on Equity (ROE), and Net Interest Margin (NIM). We analyzed a diverse set of financial institutions 41, including commercial banks, specialized banks, foreign banks, microfinance banks, development financial institutions, and investment banks from 2013-222. We explore bank-specific variables, including size, capital adequacy, operating expenses, productivity, asset quality, liquidity, deposits, asset management, operating efficiency, and leverage. Additionally, we examine the influence of macroeconomic determinants, such as gross domestic product rate, inflation rate, exchange rate, interest rate, financial crises, and government changes. A two-step GMM approach was applied to manage endogeneity issues, providing robust, reliable insights into the determinants of profitability and the findings uncover intricate correlations within Pakistan's diverse banking landscape, highlighting both positive and negative influences on bank profitability. This study enhances existing literature by offering a comprehensive perspective on bank profitability determinants in Pakistan, integrating micro and macroeconomic factors. It provides valuable insights for stakeholders within the banking industry, emphasizing the relevance of its findings within Pakistan's evolving banking sector.
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