Understanding the effects of banking profitability in Pakistan

Tanzeela Yaqoob, Zara Omer () and Samreen Fatima ()
Additional contact information
Tanzeela Yaqoob: Department of Statistics, University of Karachi, Karachi, Sindh, Pakistan
Zara Omer: Department of Statistics, University of Karachi, Karachi, Sindh, Pakistan
Samreen Fatima: Department of Statistics, University of Karachi, Karachi, Sindh, Pakistan

International Journal of Financial Engineering (IJFE), 2022, vol. 09, issue 02, 1-19

Abstract: The purpose of this study is to investigate the bank specific determinants related to the performance of public and private sector banks in Pakistan. Using strongly balanced panel yearly data from 2010 to 2017, Pooled OLS, fixed effect, Random effect and Random Effect Mundlak Transformation (REMT) have been utilized to provide the empirical evidences in credit risk management in Pakistan. The identification of suitable explanatory variable that explains the banking profitability wisely is made possible by using the panel data techniques. In this study, impact of bank specific variables are: Return On Assets, Capital Ratio, Credit Risk, Credit deposit ratio, Liquidity Ratio, Interest expended to interest earned, bank size and ownership on the profitability of banks in Pakistan has been assessed using four different panel data techniques. Out of the four estimation strategies Random Effect with Mundlak (1978) transformation raises the overall variation of the baseline model to 63% that is explained by banking profitability. Ignoring the time-invariant characteristics in the model, credit deposit ratio and interest expanded to interest earned possess negative relationship with return on assets of banks. Size of the bank is positive and significant when with-in and between banks information is augmented in Radom effect method of estimation. However the size of banks may not affect the banking profitability by allowing correlation between unobservable heterogeneity using Random Effect with Mundlak (1978) transformation.

Keywords: ROA; credit risk; REMT; bank profitability; heterogeneity (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S2424786321500031
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:ijfexx:v:09:y:2022:i:02:n:s2424786321500031

Ordering information: This journal article can be ordered from

DOI: 10.1142/S2424786321500031

Access Statistics for this article

International Journal of Financial Engineering (IJFE) is currently edited by George Yuan

More articles in International Journal of Financial Engineering (IJFE) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().