Determinants of Commercial Banks Profitability: Panel Data Evidence from Pakistan

Abstract

Purpose- The rationale of this study is to investigate the determinants of commercial banks profitability in Pakistan over the period 2004-2010

Design/methodology/approach- Multiple regression analysis using cross sectional time series data is used to test the relationship between return on asset after tax as a dependent variable and various independent variables

Findings- The results indicate that internal factors such as liquidity, firm’s efficiency, assets composition and deposit composition as well as external factors such as firm size have significant impact on the profitability of commercial banks.

Research limitations/implications- The sample size being taken in this study is small due to the unavailability of data because the most commercial banks annual reports are computerized since 2006. More evidence is needed on the determinants of commercial bank profitability in Pakistan to generalize the results beyond these five banks or to different study periods.

Practical implications- The study might help the commercial banks managers to concentrate on the factors actually determine the banks performance so that they will be able to take more strategic approach to add value to their organizations.

Originality/value- The study adds to the literature on the commercial banks profitability determinants and particularly such study has not been conducted in Pakistan so far.

Keywords: Commercial banks profitability, Banks, Pakistan