Bank specific factors, macroeconomic determinants, banking sector, Tobin’s Q ratio, Profitability


The financial sector is the key player to enhance sustainable economic growth. Commercial banks play an important role to improve the performance of the financial sector of the economy and their profitability is closely connected to the soundness of the entire economy.  The purpose of this study is to determine the internal determinants (bank-specific) and external determinants (macro-economic) of profitability. In this regard, the study adopted a quantitative research design by using the panel data of 17 commercial banks of Pakistan over the period of 2014-2018. Internal factors analyzed in this study were Liquidity, Size, and Capital Adequacy. While external factors were Gross Domestic Product (GDP) and Inflation. The data was analyzed by using simple OLS regression and Tobin’s Q ratio. The analysis showed that GDP has a significant impact on profitability. However, inflation has no impact on profitability.  Tobin’s Q ratio of most of the banks is increasing which depicted their equilibrium position. Based on the findings, the study recommended some policies that will encourage banks to reduce credit risk and minimize their liquidity holdings. Moreover, the Government should take the proper initiatives to enhance the confidence of investors towards the stock market.

Full Text : PDF

  • Abel, S., & Le Roux, P. (2016). Assessing Banking Sector Competition in Zimbabwe Using a Panzar-Rosse Approach. Economic Research Southern Africa, ERSA Working Paper No. 599.
  • Abidi, F. S., & Lodhi, S. (2015). Impact of changes in reserve requirement on banks profitability: A case of commercial banks in Pakistan. European Journal of Business and Management, 1-6.
  • Ahmad, S., Nafees, B., & Khan, Z. A. (2012). Determinants of profitability of Pakistani banks: Panel data evidence for the period 2001-2010. Journal of Business Studies Quarterly, 4(1), 149-156.
  • Akhtar, M. F., Ali, K., & Sadaqat, S. (2011). Factors influencing the profitability of Islamic banks of Pakistan. International Research Journal of Finance and Economics, 1–8.
  • Ali, M. (2015). Bank profitability and its determinants in Pakistan: A panel data analysis after financial crisis. MPRA Paper No. 67987.
  • Alshatti, A. S. (2016). Determinants of banks’ profitability- the case of Jordan.Investment Management and Financial Innovations, 13(1), 84–91.
  • Anbar, A., & Alper, D. (2011). Bank specific and macroeconomic determinants of commercial bank profitability: Empirical evidence from Turkey. Business and Economics Research Journal, 2(2), 139–152.
  • Antoun, R., Coskun, A., & Georgiezski, B. (2018). Determinants of financial performance of banks in Central and Eastern Europe. Business and Economic Horizons, 513–529.
  • Anwar, Y. (2011). Role of Financial Institutions and Capital Market in Pakistan’s Economy. Governor’s Speeches.
  • Athanasoglou, P. P., Brissimis, S. N., & Delis, M. D. (2008). Bank-specific, industry-specific, and macroeconomic determinants of bank profitability. Journal of International Financial Markets, Institutions and Money, 18(2), 121–136.
  • Bashir, A.-H. M. (2003). Determinants of profitability in Islamic banks: Some evidence from the Middle East. Islamic Economic Studies, 31-57.
  • Bourke, P. (1989). Concentration and other determinants of bank profitability in Europe, North America, and Australia. Journal of Banking & Finance, 13(1), 65–79.
  • Creswell, J. W. (2002) A Framework for Design. In Research Design: Qualitative, Quantitative and Mixed Methods Approaches. 2nd. ed. Thousand Oaks: Sage
  • Curak, M., Poposki, K., & Pepur, S. (2012). Profitability determinants of the Macedonian banking sector in changing environment. Procedia-Social and Behavioral Sciences, 406–416.
  • Dubelaar, C., Sohal, A., & Savic, V. (2005). Benefits, impediments, and critical success factors in B2C E-business adoption. Technovation, 25(11), 1251–1262.
  • Ebenezer, O. O., Omar, W. A. W. B., & Kamil, S. (2017). Bank specific and macroeconomic determinants of commercial bank profitability: Empirical evidence from Nigeria. International Journal of Finance & Banking Studies, 6(1), 25-38.
  • Egbunike, C. F., & Okerekeoti, C. U. (2018). Macroeconomic factors, firm characteristics, and financial performance: A study of selected quoted manufacturing firms in Nigeria. Asian Journal of Accounting Research, 3(2), 142–168.
  • Eichengreen, B., & Gibson, H. D. (2001). Greek banking at the dawn of the new millennium. working paper no. 2791.
  • Fani, K.A., Khan.V. J., Kumar, B., & Kumar, B. (2018). Impact of Internal and External Factors on Bank Performance in Pakistan. International and Public Affairs, 66-77.
  • Feilzer, M. Y. (2010) Doing mixed methods research pragmatically: Implications for the rediscovery of pragmatism as a research paradigm. Journal of mixed methods research, 4 (1), 6-16
  • Goddard, J.A., Molyneux, P. and Wilson, J.O. (2004), “Dynamics of growth and profitability in banking”, Journal of Money, Credit, and Banking, Vol. 36 No. 6, pp. 1069-1090.
  • Haron, S. (2004). Determinants of Islamic bank profitability. Global Journal of Finance and Economics, 1(1), 11–33.
  • Hassan Al-Tamimi, H. A. (2006). The determinants of the UAE commercial banks’ performance: A comparison of the national and foreign banks. Journal of Transnational Management, 10(4), 35–47.
  • Idris, A.R., F.F.A.H. Asari, N.A.A. Taufik, N.J. Salim, R. Mustaffa and K. Jusoff, 2011. (2011). Determinant of Islamic banking institutions’ profitability in Malaysia. World Appl. Sci. J, 01–07.
  • Johnson, Z., & Sammer, M. (2016). Determinants of profitability in Banking Sector. International Journal of Information Research and Review, 2258–2264.
  • Kamran, Hafiz Waqas, Zermen Johnson, and Mamoona Sammer. 2016. Determinants of Profitability in Banking Sector. International Journal of Information Research and Review, 2258–2264.
  • Levine, R., Loayza, N., & Beck, T. (2000). Financial intermediation and growth: Causality and causes. Journal of Monetary Economics, 46(1), 31–77.
  • Mirzaei, A., Moore, T. and Liu, G. (2013), “Does market structure matter on banks’ profitability and stability? Emerging vs advanced economies”, Journal of Banking and Finance, Vol. 37 No. 8, pp. 2920-2937
  • Mohiuddin, M. (2017). The Determinants of Profitability of Private Banks in Bangladesh: An Empirical Analysis. Igdir University Journal of Social Sciences, 141-172.
  • Molyneux, P., & Thornton, J. (1992). Determinants of European bank profitability: A note. Journal of Banking & Finance, 16(6), 1173–1178.
  • Nisar, S., Susheng, W., Jaleel, A., & Ke, P. (2015). Determinants of bank’s profitability in Pakistan: A latest panel data evidence. International Journal of Economics, Commerce and Management, 1-20.
  • Naceur, S.B. and Omran, M. (2011), “The effects of bank regulations, competition, and financial reforms on banks' performance”, Emerging Markets Review, Vol. 12 No. 1, pp. 1-20.
  • Pasiouras, F., & Kosmidou, K. (2007). Factors influencing the profitability of domestic and foreign commercial banks in the European Union. Research in International Business and Finance, 222–237.
  • Petria, N., Capraru, B., & Ihnatov, I. (2015). Determinants of banks’ profitability: Evidence from EU 27 banking systems. Procedia Economics and Finance, 518–524.
  • Rao, K. R. M., & Lakew, T. B. (2012). Cost Efficiency and Ownership Structure of Commercial Banks in Ethiopia: An application of non-parametric approach. European Journal of Business and Management, 4(10), 36–47.
  • Rashid, A., & Jabeen, S. (2016). Analyzing performance determinants: Conventional versus Islamic banks in Pakistan. Borsa Istanbul Review, 16(2), 92–107.
  • Shah, S. K. and Corley, K. G. (2006) Building Better Theory by Bridging the Quantitative– Qualitative Divide. Journal of Management Studies, 43 (8), 1821-1835.
  • Srairi, S. A. (2010). Cost and profit efficiency of conventional and Islamic banks in GCC countries. Journal of Productivity Analysis, 34(1), 45–62.
  • Sufian, F. (2009). Determinants of bank profitability in a developing economy: Empirical evidence from the China banking sector. Journal of Asia-Pacific Business, 10(4), 281–307.
  • Sufian, F. (2010), “Does foreign presence foster Islamic banks’ performance? Empirical evidence from Malaysia”, Journal of Islamic Accounting and Business Research, Vol. 1 No. 2, pp. 128-147
  • Trujillo-Ponce, A. (2013). What determines the profitability of banks? Evidence from Spain. Accounting & Finance, 53(2), 561–586.
  • Vieira, R. (2010). The relationship between liquidity and profitability: An exploratory study of airline companies between 2005 and 2008. (Unpublished master thesis), Umea University.
  • Wasiuzzaman, S., & Tarmizi, H. (2010). Profitability of Islamic banks in Malaysia: An empirical analysis. Journal of Islamic Economics, Banking and Finance, 6(4), 53–68.
  • Zhang, X., & Daly, K. J. (2013). The impact of bank specific and macroeconomic factors on China’s bank performance. Global Economy and Finance Journal, 6(2), 1–25.
  • Zopounidis, C., & Kosmidou, K. (2008). The determinants of banks’ profits in Greece during the period of EU financial integration. Managerial Finance, 146-159.