Influence of Bank Specific and Macroeconomic Factors on Profitability of Commercial Banks: A Case Study of Pakistan

Abstract

The intended aim of study is to identify the influence of bank specific and macroeconomic factors on profitability of commercial banks in Pakistan over the period of 2007 to 2011. Return on assets and return on equity are used as dependent variable. Deposit to assets, bank size, capital ratio, net interest margin and nonperforming loans to total advances are utilized as bank specific measures. Inflation, real gross domestic product and industry production growth rate are macroeconomic factors. By employing descriptive statistics, correlation and regression analysis researcher conclude that bank size, net interest margin, and industry production growth rate has positive and significant impact on the ROA and ROE. Nonperforming loans to total advances and inflation have negative significant impact on Return on assets while real gross domestic product has positive impact on ROA. Capital ratio has positive significant impact on ROE.

Key words: Return on Assets, Return on Equity, Inflation, Capital Ratio, Nonperforming loans