Abstract
The aim of this research is to investigate the internal and
external determinants of the profitability of commercial banks
in Pakistan. We took data from 21 commercial banks listed on
Pakistan Stock Exchange-PSX, earlier Karachi Stock
Exchange, from 2006-2015. Panel regression analysis is used
to evaluate the impact of internal and external determinants of
profitability. Data is analyzed by using E-views software. ROA
and ROE are used as proxy variables to measure profitability.
Internal variables are bank size, capital adequacy, asset quality,
asset management, liquidity, management quality, and financial
risk, whereas, GDP, inflation, interest rate, and, exchange rate
are used as external determinants. The outcomes indicate that
among internal factors bank size, capital adequacy ratio,
liquidity, management quality, and asset management are found
to be significant determinants of banks’ profitability. In case of
external factors, GDP and exchange rate are significant
determinants of profitability, whereas, the interest rate is
significant at 10% level of significance. The banks need to
improve the quality of assets in order to improve profitability.
The fiscal policy of the country should be aligned with the need
of the banking sector.
Bilal Sarwar, Ghulam Mustafa, Aroosa Abid, Muhammad Ahmad. (2018) Internal and External Determinants of Profitability: A Case of Commercial Banks of Pakistan, Paradigms , Vol 12, Issue 1.
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