THE IMPACT OF MACROECONOMIC VARIABLES ON THE PROFITABILITY OF LISTED COMMERCIAL BANKS IN PAKISTAN
Journal Title: European Journal of Business and Social Sciences - Year 2013, Vol 2, Issue 9
Abstract
Based on vital contribution of the commercial banks to economic progress of Pakistan, this study investigates the impact of macroeconomic variables on profitability of public limited commercial banks in Pakistan for years 2001- 2011. Pooled Ordinary Least Square (POLS) method is used to examine the effect of 3 major external factors; inflation rate, real gross domestic product (GDP) and real interest rate on profitability indicators; return on assets (ROA), return on equity (ROE) and equity multiplier (EM) ratios in 3 separate models. The empirical findings indicate a strong positive relationship of real interest rate with ROA, ROE and EM. Secondly, real GDP is found to have an insignificant positive effect on ROA, but an insignificant negative impact on ROE and EM. Inflation rate on the other hand, has a negative link with all 3 profitability measures. Overall, the selected macroeconomic factors are found to have a negligible impact on earnings of commercial banks.
Authors and Affiliations
Sara Kanwal| University of Central Punjab Lahore sara.kanwal89@gmail.com, Muhammad Nadeem| (Corresponding Author) University of Central Punjab Lahore nadeem_umt@hotmail.com
Keywords
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