Impact of Bank Specific and Macroeconomic Factors on Banks Profitability: A Study on Banking Sector of Pakistan

Abstract

This research focuses and examines the association among profitability of banks, along with bank specific and macroeconomic factors of Pakistan. With the help of financial data of thirty-two Pakistani banks over the period of 2011-2015. Pooled OLS (POLS)/Random Effect, Breusch and Pagan Lagrangian Multiplier Test for Random Effects estimations and Hausman Test for Fixed vs Random effects estimations used for further empirical analysis and interpretations. Further to explore the relationship of profitability indicator ROA along with Earning per Share (EPS), SIZE, Cash Equivalents, Spread Ratio and Capital Ratio as bank specific (banking/microeconomic indicators), while on the other hand Inflation, Interest Rate and GDP as external macroeconomic factors. Statistical results to this study established confirmation that EPS, SIZE, Capital Ratio and GDP have a significant impact on the ROA of banking sector in Pakistan. The calculated results of the study are of worthy to mutually academics and banking financial policy makers.