Investigation of Profitability of Banking Sector: Empirical Evidence from Pakistan

Abstract

This empirical work investigates banking sector of Pakistan and comments on bank's profitability in the post crisis scenario. Study explores how sector specific variables are involved in profitability when there is process of financial liberalization, and the repercussion of financial fragility persists due to severe financial crises. A sample of 26 banks were selected on the basis of financial deepness of each bank for a period 6 years ranging from 2006-2011 (short panel). The study used fixed effect regression model for estimation, the viability of which was confirmed statistically by executing Housman test. White cross section covariance approach was adopted to achieve consistency in parameters. Findings help to conclude that sector specific variables have considerable gravity to effect banking profitability but inexorable link between macroeconomic soundness and financial stability could not be confirmed, believing thereby that Pakistani macroeconomic scenario stands an outlier and deviating from rest of the world.