This document summarizes a research study that investigated the determinants of commercial bank profitability in Pakistan from 2004-2010. The researchers used multiple regression analysis on a sample of 5 major commercial banks to determine the relationship between return on assets (the dependent variable) and various internal and external independent variables. The results indicated that internal factors like liquidity, efficiency, asset composition, deposit composition, and external factors like firm size had a significant impact on bank profitability. The study adds to the limited literature on factors influencing bank performance in Pakistan.
This paper empirically examines the impact of bank specific characteristics in determining the Islamic banking profitability in Bangladesh. Research period covers 2010–2017. Research method is a panel analysis. Fixed effects model is applied based on the Hausman test. The study takes return on assets (ROA) as the proxy of profitability. Company specific explanatory variables for the study are bank size, capital-to-risk assets (CRAR), investment-to-deposit (liquidity), non-performing investment (NPI), and cost-to-income. The study finds 4 out of 5 variables statistically significant. However, liquidity slightly misses the significance level. We have found CRAR and cost-to-income are negatively correlated, and liquidity is positively correlated to bank profitability as our expectation. On the other hand, estimation shows a negative correlation between bank size and profitability. Moreover, NPI is found to be positively correlated to ROA because Islamic banking industry’s very low percentage of non-performing investment (3.3%) could not inversely affect the profitability.
The profitability of commercial banks is influenced by a number of internal and external factors. This paper attempts to identify the internal factors which significantly influence the profitability of commercial banks in Bangladesh. In this study, profitability is measured by ROA and ROE which may be significantly influenced by the internal factors such as IRS, NIM, CAR, CR, DG, LD, CTI and SIZE of the bank. Data are collected from published annual reports during 2014--2018 of 23 commercial banks. Using simple regression model, it is found that CR has significant effect on the profitability and CAR has significant influence on ROA only. In addition to this, DG has significant effects on PCBs’ profitability (ROE only) where as IRS and CTI have significant influence on profitability (ROA only) of ICBs. Further, none of these variables have significant effects on the profitability of SCBs but CAR and CR are correlated with profitability (ROA only) and the causes may be the nature of services provided by SCBs to its clients. The internal policy makers should manage the influential internal factors of the banks in order to increase their profitability so that they can meet stakeholders’ expectations.
The Performance Analysis of Private Conventional Banks: A Case Study of Bangl...IOSR Journals
This study attempts primarily to measure the financial performance of some selected private
commercial banks in Bangladesh for the period 2006-2011 and to identify whether any relationship exists
between a bank’s years of operation and its performance. For this purpose five banks have been selected from
different generations. The financial performances of these banks have been scrutinized from the following four
dimensions: (1) profitability (2) liquidity (3) credit risk and (4) efficiency. The study concluded that there is no
specific relationship between the generation of banks and its performance. The performances of banks are
dependent more on the management’s ability in formulating strategic plans and the efficient implementation of
its strategies. The study findings can be helpful for management of private commercial banks in Bangladesh to
improve their financial performance and formulate policies that will improve their performance. The study also
identified specific areas for each bank to work on which can ensure sustainable growth for these banks
Determinants of Banks’ Financial Performance: A Comparative Study between Nat...inventionjournals
Financial performance is one of the most critical factors having impact on the decision making of the resource providers. And thus to ensure the existence in the ever growing competitive business environment, every institution should be more concerned about the factors affecting their financial performance. This paper specially focuses on identifying the factors having impact on the financial performance of the commercial banks operating in Bangladesh. An effort has also been exerted to determine whether the extent of influence of various factors on financial performance varies with respect to local private and nationalized commercial banks. For this purpose 10 local private commercial banks (PCB) and all nationalized commercial banks (NCB) have been taken covering the period from 2008-2014. Here, data has been collected from the annual reports of the banks under consideration. To draw conclusion a multiple regression has been run by considering financial performance (profitability) as dependent variable and operating efficiency, asset utilization , liquidity, credit risk, capital adequacy and size of the company as independent variables. The study finds that asset utilization and operating efficiency have significant positive impact on banks' financial performance (profitability) whereas credit risk has significant negative impact. However, for PCBs asset utilization is the most critical factor to performance. On the other hand, result shows that in case of NCB 1 taka increase in credit risk is responsible for negative return of 0.968 taka. It is found that financial performance has no significant relationship with size and liquidity of the banks
The Impact of Liquidity on Profitability on Selected Banks of Bangladesh Samia Ibrahim
This research seeks to establish a relationship between liquidity and profitability which may assess in liquidity management in the banks in Bangladesh.There has been a wide range of study on the concepts of liquidity and profitability. My research differs from the previous works as such research was not done in the context of Bangladeshi banking sector using recent data.
A STUDY ON THE FINANCIAL PERFORMANCE OF FOREIGN COMMERCIAL BANKS IN SRI LANKA...ectijjournal
Banks serve as backbone to the financial sector, which facilitate the proper utilization of financial
resources of a country. The banking sector is increasingly growing and it has witnessed a huge flow of
investment. The banking sector of developing countries is different from the developed countries in term of
performance. The banking sector, especially commercial banks of Sri Lanka plays a vital role in the Sri
Lankan economy. The focus of this study was to investigate the financial performance of foreign
commercial banks in Sri Lanka. Many studies are conducted in different countries to study the financial
performance of banking sector using the various statistical methods. In this study, the CAMEL rating
system is used to study the financial performance of foreign commercial banks in Sri Lanka. The study
selects three foreign banks for the analysis. Data was collected for the time period of 2008-2014.
According to the findings foreign sector banks are good in the performance of capital adequacy and
earnings while other variables show an average performance.
A Dissertation Report On "Study Of Net Interest Margin {NIM} Of Selected INDIAN Public & Private Sector Banks"
Has Undertaken 10 Years Financial Data Of Selected Banks i.e. 2008-2017 for the Study.
International Journal of Business and Management Invention (IJBMI)inventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
This research aims to identify and analyze the effect of Capital Adequacy Ratio (CAR), Operation Expense (BOPO), Net Interest Margin (NIM), and Non Performing Loan (NPL) of the Loan to Deposit Ratio (LDR) of conventional bank on the Indonesia Stock Exchange period 2012 – 2017, either simultaneously or partially. Independent variables used in this study is CAR, BOPO, NIM and NPL, while LDR as the dependent variable.The population in this research is conventional bank listed on the Indonesia Stock Exchange. The sampling technique in this research is purposive sampling. The number of samples in accordance with the prescribed criteria are as many as 35 samples. Based on the result of the research found that the variable CAR influences negatively insignificantly toward LDR, BOPO and NIM influences positively insignificantly toward LDR, while the variable NPL influences positively significantly toward CAR. But simultaneously CAR, BOPO, NIM, and NPL jointly affect the LDR.
A Comparison of Key Determinants on Profitability of India’s Largest Public a...Rajveer Rawlin
The banking sector in India has come under the scanner following some key changes in monetary policy. With
the Reserve bank of India (RBI) raising interest rates to support the falling Indian currency the Rupee, the cost of
funds of banks has increased significantly. This could manifest itself in rising non-performing assets (NPAs) and
declining profitability. The profitability of banks is impacted by both internal and external factors. This paper is
an attempt to compare the key drivers of profits at India’s largest public and private sector banks. Bank specific
metrics and risk factors were important drivers of profits at both banks. Productivity measures were key drivers
of profits at India’s largest public sector bank SBI but had no effect on profits at India’s largest private sector
bank, HDFC bank. Asset usage efficiency measures were key determinants of profitability at HDFC bank but not
at SBI. The single most important determinant of SBI proved to be business per employee, a productivity
measure while advances and bank size which are traditional bank metrics were key drivers of profits at HDFC
bank. Managers at both banks and their share holders thus can look at these drivers to develop a broad
understanding of profitability at the two banks.
This research work investigated the influence of firm size on the financial performance of deposit money banks quoted on the Nigerian stock exchange. The research work is necessitated by the need to find the factors that respond positively or negatively to the financial performance of deposit money banks in Nigeria. Five deposit money banks were sampled with the aid of Taro Yemeni sampling technique to represent the entire banking industry in Nigeria. The firm size proxied by log of total assets represents the explanatory variable while the financial performance measured by profitability proxied by return on asset is the dependent variable. The analysis was conducted using the pooled OLS regression and fixed effect/random effect regression with the aid of STATA for panel regression. In addition, descriptive statistics and correlation analysis were computed. The finding of the study indicates that firm size insignificantly negatively influenced financial performance as a result of diseconomies of scale. The study therefore recommends that the industry should minimize the cost of expansion and enjoy maximum benefits of economies of scale in addition to other factors that may stimulate financial performance should be considered instead of the firm size that indicate insignificantly negative effect.
This paper empirically examines the impact of bank specific characteristics in determining the Islamic banking profitability in Bangladesh. Research period covers 2010–2017. Research method is a panel analysis. Fixed effects model is applied based on the Hausman test. The study takes return on assets (ROA) as the proxy of profitability. Company specific explanatory variables for the study are bank size, capital-to-risk assets (CRAR), investment-to-deposit (liquidity), non-performing investment (NPI), and cost-to-income. The study finds 4 out of 5 variables statistically significant. However, liquidity slightly misses the significance level. We have found CRAR and cost-to-income are negatively correlated, and liquidity is positively correlated to bank profitability as our expectation. On the other hand, estimation shows a negative correlation between bank size and profitability. Moreover, NPI is found to be positively correlated to ROA because Islamic banking industry’s very low percentage of non-performing investment (3.3%) could not inversely affect the profitability.
The profitability of commercial banks is influenced by a number of internal and external factors. This paper attempts to identify the internal factors which significantly influence the profitability of commercial banks in Bangladesh. In this study, profitability is measured by ROA and ROE which may be significantly influenced by the internal factors such as IRS, NIM, CAR, CR, DG, LD, CTI and SIZE of the bank. Data are collected from published annual reports during 2014--2018 of 23 commercial banks. Using simple regression model, it is found that CR has significant effect on the profitability and CAR has significant influence on ROA only. In addition to this, DG has significant effects on PCBs’ profitability (ROE only) where as IRS and CTI have significant influence on profitability (ROA only) of ICBs. Further, none of these variables have significant effects on the profitability of SCBs but CAR and CR are correlated with profitability (ROA only) and the causes may be the nature of services provided by SCBs to its clients. The internal policy makers should manage the influential internal factors of the banks in order to increase their profitability so that they can meet stakeholders’ expectations.
The Performance Analysis of Private Conventional Banks: A Case Study of Bangl...IOSR Journals
This study attempts primarily to measure the financial performance of some selected private
commercial banks in Bangladesh for the period 2006-2011 and to identify whether any relationship exists
between a bank’s years of operation and its performance. For this purpose five banks have been selected from
different generations. The financial performances of these banks have been scrutinized from the following four
dimensions: (1) profitability (2) liquidity (3) credit risk and (4) efficiency. The study concluded that there is no
specific relationship between the generation of banks and its performance. The performances of banks are
dependent more on the management’s ability in formulating strategic plans and the efficient implementation of
its strategies. The study findings can be helpful for management of private commercial banks in Bangladesh to
improve their financial performance and formulate policies that will improve their performance. The study also
identified specific areas for each bank to work on which can ensure sustainable growth for these banks
Determinants of Banks’ Financial Performance: A Comparative Study between Nat...inventionjournals
Financial performance is one of the most critical factors having impact on the decision making of the resource providers. And thus to ensure the existence in the ever growing competitive business environment, every institution should be more concerned about the factors affecting their financial performance. This paper specially focuses on identifying the factors having impact on the financial performance of the commercial banks operating in Bangladesh. An effort has also been exerted to determine whether the extent of influence of various factors on financial performance varies with respect to local private and nationalized commercial banks. For this purpose 10 local private commercial banks (PCB) and all nationalized commercial banks (NCB) have been taken covering the period from 2008-2014. Here, data has been collected from the annual reports of the banks under consideration. To draw conclusion a multiple regression has been run by considering financial performance (profitability) as dependent variable and operating efficiency, asset utilization , liquidity, credit risk, capital adequacy and size of the company as independent variables. The study finds that asset utilization and operating efficiency have significant positive impact on banks' financial performance (profitability) whereas credit risk has significant negative impact. However, for PCBs asset utilization is the most critical factor to performance. On the other hand, result shows that in case of NCB 1 taka increase in credit risk is responsible for negative return of 0.968 taka. It is found that financial performance has no significant relationship with size and liquidity of the banks
The Impact of Liquidity on Profitability on Selected Banks of Bangladesh Samia Ibrahim
This research seeks to establish a relationship between liquidity and profitability which may assess in liquidity management in the banks in Bangladesh.There has been a wide range of study on the concepts of liquidity and profitability. My research differs from the previous works as such research was not done in the context of Bangladeshi banking sector using recent data.
A STUDY ON THE FINANCIAL PERFORMANCE OF FOREIGN COMMERCIAL BANKS IN SRI LANKA...ectijjournal
Banks serve as backbone to the financial sector, which facilitate the proper utilization of financial
resources of a country. The banking sector is increasingly growing and it has witnessed a huge flow of
investment. The banking sector of developing countries is different from the developed countries in term of
performance. The banking sector, especially commercial banks of Sri Lanka plays a vital role in the Sri
Lankan economy. The focus of this study was to investigate the financial performance of foreign
commercial banks in Sri Lanka. Many studies are conducted in different countries to study the financial
performance of banking sector using the various statistical methods. In this study, the CAMEL rating
system is used to study the financial performance of foreign commercial banks in Sri Lanka. The study
selects three foreign banks for the analysis. Data was collected for the time period of 2008-2014.
According to the findings foreign sector banks are good in the performance of capital adequacy and
earnings while other variables show an average performance.
A Dissertation Report On "Study Of Net Interest Margin {NIM} Of Selected INDIAN Public & Private Sector Banks"
Has Undertaken 10 Years Financial Data Of Selected Banks i.e. 2008-2017 for the Study.
International Journal of Business and Management Invention (IJBMI)inventionjournals
International Journal of Business and Management Invention (IJBMI) is an international journal intended for professionals and researchers in all fields of Business and Management. IJBMI publishes research articles and reviews within the whole field Business and Management, new teaching methods, assessment, validation and the impact of new technologies and it will continue to provide information on the latest trends and developments in this ever-expanding subject. The publications of papers are selected through double peer reviewed to ensure originality, relevance, and readability. The articles published in our journal can be accessed online.
This research aims to identify and analyze the effect of Capital Adequacy Ratio (CAR), Operation Expense (BOPO), Net Interest Margin (NIM), and Non Performing Loan (NPL) of the Loan to Deposit Ratio (LDR) of conventional bank on the Indonesia Stock Exchange period 2012 – 2017, either simultaneously or partially. Independent variables used in this study is CAR, BOPO, NIM and NPL, while LDR as the dependent variable.The population in this research is conventional bank listed on the Indonesia Stock Exchange. The sampling technique in this research is purposive sampling. The number of samples in accordance with the prescribed criteria are as many as 35 samples. Based on the result of the research found that the variable CAR influences negatively insignificantly toward LDR, BOPO and NIM influences positively insignificantly toward LDR, while the variable NPL influences positively significantly toward CAR. But simultaneously CAR, BOPO, NIM, and NPL jointly affect the LDR.
A Comparison of Key Determinants on Profitability of India’s Largest Public a...Rajveer Rawlin
The banking sector in India has come under the scanner following some key changes in monetary policy. With
the Reserve bank of India (RBI) raising interest rates to support the falling Indian currency the Rupee, the cost of
funds of banks has increased significantly. This could manifest itself in rising non-performing assets (NPAs) and
declining profitability. The profitability of banks is impacted by both internal and external factors. This paper is
an attempt to compare the key drivers of profits at India’s largest public and private sector banks. Bank specific
metrics and risk factors were important drivers of profits at both banks. Productivity measures were key drivers
of profits at India’s largest public sector bank SBI but had no effect on profits at India’s largest private sector
bank, HDFC bank. Asset usage efficiency measures were key determinants of profitability at HDFC bank but not
at SBI. The single most important determinant of SBI proved to be business per employee, a productivity
measure while advances and bank size which are traditional bank metrics were key drivers of profits at HDFC
bank. Managers at both banks and their share holders thus can look at these drivers to develop a broad
understanding of profitability at the two banks.
This research work investigated the influence of firm size on the financial performance of deposit money banks quoted on the Nigerian stock exchange. The research work is necessitated by the need to find the factors that respond positively or negatively to the financial performance of deposit money banks in Nigeria. Five deposit money banks were sampled with the aid of Taro Yemeni sampling technique to represent the entire banking industry in Nigeria. The firm size proxied by log of total assets represents the explanatory variable while the financial performance measured by profitability proxied by return on asset is the dependent variable. The analysis was conducted using the pooled OLS regression and fixed effect/random effect regression with the aid of STATA for panel regression. In addition, descriptive statistics and correlation analysis were computed. The finding of the study indicates that firm size insignificantly negatively influenced financial performance as a result of diseconomies of scale. The study therefore recommends that the industry should minimize the cost of expansion and enjoy maximum benefits of economies of scale in addition to other factors that may stimulate financial performance should be considered instead of the firm size that indicate insignificantly negative effect.
Impact of profitability, bank and macroeconomic factors on the market capital...inventionjournals
Panel data has been collected for 44 Middle Eastern banks that are operated during 2005 to 2014 in different Middle Eastern countries. Secondary data has been collected primarily through the DataStream database. The study is conducted to investigate the impact of profitability, bank and macroeconomic factors on the market capitalization of the Middle Eastern banks. Results of Hausman test have explained that fixed effect model is appropriate for the analysis. The result of multiple regression have shown that market capitalization has positive relationship with ROI while negative relationship with credit risk, inflation, and year dummy for the Middle Eastern banks. Furthermore, no relationship has been observed between market capitalization and the ROA, ROE, growth and exchange rate for the Middle Eastern banks.
An Impact of Capital Adequacy Ratio on the Profitability of Private Sector Ba...Dr. Amarjeet Singh
Profitability being one of the cardinal principles of bank lending acts as a game changer for the survival and success of private sector banks in India. In order to stay profitable, banks have to capitalise on every penny advanced to yield the expected returns. However, considering the constraints laid down by the Reserve Bank of India, banks have to maintain a minimum capital adequacy ratio, as per the current BASEL III regulations active in India. With the mergers of public sector banks, the challenge has got just tougher for the private sector banks in India. Expansion and Diversification are the key strategies adopted by the key players from the private banking sector, however, with the minimum capital adequacy ratio observed by them, it is necessary to understand its actual impact on the bank’s profitability. This research paper aims to throw light upon the linkage that capital adequacy has with the bank’s profitability. It attempts to establish a relation between the Capital Adequacy Ratio with the Net profits of the bank. For the purpose of this study, data from the past 5 years of the leading private sector banks has been collected, namely, HDFC Bank, ICICI Bank, Kotak Mahindra Bank, AXIS Bank and YES Bank. The collected data has been analysed using Pearson’s Correlation to establish a relation between the CAR Ratio & the bank’s profitability. Hypothesis testing has been further done to study the quantum of proportionate change in the profitability with a change in the CAR Ratio for private sector banks using applicable research tools. The said research tools are applied to achieve the desired results while maintaining the required quantum of accuracy. It also aims to understand the proportionate impact of changes in CAR to the bank’s profitability, which can act as a suggested measure for banks to develop a reliable framework for efficient capital management and increase overall efficiency. The results derived from the data collected and analyzed aim to provide scope for further study on the subject matter.
Idiosyncratic Effect of Corporate Solvency Management Strategies on Corporate...IOSR Journals
The study identifies and evaluates the association among corporate solvency management strategies and the corporate performance valuation in Chemical industry of Pakistan. The study uses purposive sampling or judgmental sampling for selecting 30 sample companies from the sector; covering 10 years financial statements data ranging from year 2002 to 2011. Balanced panel data is taken for the purpose of study. Levin, Lin & Chu test is used to check the stationarity of data whereas White Test is used to check the heteroskedasticity of data. Panel Least square technique with fixed effects is used to generalize the relationship between studied variables. The study observed that the performance of the chemical sector in terms of market to book value is affected by internal firm and industry specific factors related to solvency management strategic decisions. Findings of the study provide with the overview of historic performance and the potential performance of the selected sector to help policy makers including finance, economics and industry experts for creating value through the idiosyncratic resources.
Leverage, Free Cash Flow, and Interest Rates Influence of Stock Return and Fi...inventionjournals
This study aims to examine and analyze variable characteristics of the company such as leverage, free cash flow, and interest rates effect to stock return with intervening variable by financial performance. This research used a quantitative approach and a path analyzes. The object of this research is all companies in the manufacturing industries which are listed on the Indonesia Stock Exchange from 2009 until 2013. These samples are included 51 companies, with observation for five years and a total of observations are 255. These results showed that the direct effect between the leverage, free cash flow, and interest rate charge variables had no significant effect on stock return. For a direct effect, financial performance has a significant on the stock return and a indirect effect between financial performance, obtained leverage and free cash flow has not significant on stock return.
DETERMINANTS OF BANK PROFITABILITY: EVIDENCE FROM COMMERCIAL BANKS OF BANGLADESHMd. Shohel Rana
This paper attempts to investigate the impact of different bank specific
and macroeconomic variables on bank profitability by considering 23
commercial banks of Bangladesh based on data availability during the
period 2013-17. These data are collected from the individual banks
annual reports, Bangladesh Bureau of Statistics (BBS) and a variety of
publications of the Bangladesh Bank. The fixed effect model for panel
data has been applied to operate the regression analysis among the
variables. In the study, three identical measures of profitability namely
Return on Asset (ROA), Return on Equity (ROE) and Net Interest
Margin (NIM) are used. In the model for ROA, the result indicated
that earning variable (TIN, NII), and asset structure (DPST) have a
significant positive relationship with ROA, and asset quality (NPL) has
significant negative impact on ROA. For ROE, earning (TIN and NII)
and capital strength (CAP) have a significant positive relationship of
the entire explanatory variable with ROE. Only asset quality (NPL)
has significant negative impact on ROE. For NIM, earning variables
(TIN), capital strength (CAP) and liquidity (LTA) have a significant
positive relationship with NIM. This study find no significant impact
of the macroeconomic factors namely growth rate of GDP and rate
inflation and rate of interest included in the models on profitability.
For decision making and developing the performance of financial
organization in the future the findings of this study can assist the
investors, policymakers, management body and other stakeholders
Intellectual capital: A modern model to measure the value creation in a businessAI Publications
Using a sample of 92 patients, this study looked into the impact of intellectual capital on the efficiency of private hospitals. The researchers used a quantitative approach to assess the effect of Intellectual capital (Human capital, Structural capital, and Relational capital) on long-term competitive advantage in private hospitals in Iraq's Kurdistan region. The research sample was selected using a random sampling method and conducted in various locations across Iraq's Kurdistan province. A total of 110 questionnaires were distributed, but only 92 people correctly completed them. The findings revealed that the most effective relationship with firm success was between human capital as an element of Intellectual capital, while the least effective relationship was between ownership as an element of Intellectual capital. Furthermore, our findings indicate that finance managers should use debts as a last resort in terms of intellectual capital. Finally, our research can be improved by using more controlled variables, a greater sample size, and data from a longer time span in the regression models. Other methods and steps can be used as well.
A Comparative Analysis of Capital Structure between Banking and Non-Banking F...iosrjce
This research aims to compare the capital structure of Bangladeshi banking and non-banking
financial institutions through some measurements. The annual financial statements of 10 commercial banks and
10 non-bank financial institutions were used for this study which covers a period of five (5) years from 2009-
2013. The study assesses the capital structure of the banking and non-banking sectors measured by total debt
to equity ratio (DER), total debt to total funds ratio and performance by ROE, ROA, EPS.Descriptive statistics,
t-test have been used to show the differences between banking and non-banking capital structure and
performance. However this study concludes that there is no significant difference between Bank and non-bank’s
EPS but there is a significant difference between Bank and non-bank’s D/A ratio and D/E ratio and ROA and
ROE.
Effect of Portfolio Diversification on Commercial Banks Financial Performance...inventionjournals
The study examined the effect of portfolio diversification on Commercial Banks financial performance. Mixed method of research design was used and data was collected using questionnaires and interview schedules. Target population was 43 licensed Commercial Banks in Kenya from which one hundred and thirty three (133) managers were randomly selected to form sample size. Validity of the research instruments was ensured through content, face and construct validity testing. Data was analyzed using descriptive statistics and inferential statistics which included correlation analysis and bivariate regression analysis. The study established a positive statistically significant relationship between portfolio diversification and financial performance. The portfolio diversification explained 68% of the changes in the financial performance of commercial banks in Kenya and that most banks diversify their investments which has enabled them to increase profits and performance in the past years.The study recommended that financial institutions should invest in a combination of assets which are negatively correlated because this maximizes revenue (returns) and minimizes losses (risks). Further study should be undertaken to establish the best combination of assets that can yield an efficient portfolio.
Financial reporting quality has been said to play an important role in reducing information asymmetry. Thus, firms with high financial reporting quality may enhance more investors’ decision. Hence, the basic objective of this study is to determine whether earnings quality influence investors’ decision. The sample consisted of 10 manufacturing companies listed on the Nigerian Stock Exchange Market. The study period is 5 years (2010-2014). Data on accrual quality, volume of investment, Size, age and growth rate and earnings per share were drawn from the published annual report and accounts of the sampled companies. Correlation matrix, Vector auto regressive estimation and Pooled OLS model were employed for the analysis. Diagnostic tests for post estimation were also performed on the model. The result of the Ramsey Reset test shows a p-value of 0.2105, implying that model has no omitted variables. Also, Wooldridge test for autocorrelation in panel data indicates no first-order autocorrelation, showing a p-value of 0.3642. We calculated accruals quality based on the modified accrual model proposed by Mac Nichols in 2002. In this paper, the absolute value of residual error represents the financial reporting quality. This threshold is based on the idea that accruals reduce the smoothing initiated by the change in the cash flow and thus increase the earnings awareness. The study finds evidence of a positive association between investors’ decision and financial reporting quality.
Financial intermediation is a crucial function of Banks, Non-Banking financial companies (NBFCs) and Development Financial Institutions (DFIs) the post reform period in India is characterized by phenomenal growth of NBFCs complementing the role of banks in mobilizing funds and making it available for investment purposes. During the last decade NBFCs have undergone wide volatility and change as an industry and have been witnessing considerable business upheaval over the last decade because of market dynamics, public sentiments and regulatory environment. To evaluate the soundness of NBFCs in Tamil Nadu over a decade, the authors made an attempt of CAMEL criteria for analysis of selected Companies. For this purpose, out of 36 NBFCs in Tamil Nadu 4 Government Companies, 13 Small Companies and 13 Small Companies and another 13 Top Companies were selected as sample respondents on the basis of multi-stage random sampling, to evaluate soundness of each NBFCs through Capital Adequacy, Asset Quality, Management quality, Earnings and Liquidity, Based on findings the suggestions were offered to overcome the difficulties face by selected NBFCs in their development.
Similar to Determinants of commercial banks profitability panel data evidence from pakistan (20)
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The Evolution of Non-Banking Financial Companies (NBFCs) in India: Challenges...beulahfernandes8
Role in Financial System
NBFCs are critical in bridging the financial inclusion gap.
They provide specialized financial services that cater to segments often neglected by traditional banks.
Economic Impact
NBFCs contribute significantly to India's GDP.
They support sectors like micro, small, and medium enterprises (MSMEs), housing finance, and personal loans.
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
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This is because pi network is not doing any pre-sale. The only way exchanges can get pi is by buying from miners and pi merchants stands in between the miners and the exchanges.
How can I sell my pi coins?
Selling pi coins is really easy, but first you need to migrate to mainnet wallet before you can do that. I will leave the telegram contact of my personal pi merchant to trade with.
Tele-gram.
@Pi_vendor_247
how to sell pi coins at high rate quickly.DOT TECH
Where can I sell my pi coins at a high rate.
Pi is not launched yet on any exchange. But one can easily sell his or her pi coins to investors who want to hold pi till mainnet launch.
This means crypto whales want to hold pi. And you can get a good rate for selling pi to them. I will leave the telegram contact of my personal pi vendor below.
A vendor is someone who buys from a miner and resell it to a holder or crypto whale.
Here is the telegram contact of my vendor:
@Pi_vendor_247
If you are looking for a pi coin investor. Then look no further because I have the right one he is a pi vendor (he buy and resell to whales in China). I met him on a crypto conference and ever since I and my friends have sold more than 10k pi coins to him And he bought all and still want more. I will drop his telegram handle below just send him a message.
@Pi_vendor_247
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the Telegram username
@Pi_vendor_247
how to swap pi coins to foreign currency withdrawable.DOT TECH
As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
However, Pi Network has announced plans to launch its Testnet and Mainnet in the future, which may include listing Pi on exchanges.
The current method for selling pi coins involves exchanging them with a pi vendor who purchases pi coins for investment reasons.
If you want to sell your pi coins, reach out to a pi vendor and sell them to anyone looking to sell pi coins from any country around the globe.
Below is the contact information for my personal pi vendor.
Telegram: @Pi_vendor_247
Webinar Exploring DORA for Fintechs - Simont Braun
Determinants of commercial banks profitability panel data evidence from pakistan
1. Research Journal of Finance and Accounting www.iiste.org
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Determinants of Commercial Banks Profitability: Panel Data
Evidence from Pakistan
Dr. Nadeem Sohail
College of Commerce, GC University, Faisalabad, Pakistan
Tel: 0092-322-626-1634 Email: Sohail5241@hotmail.com
Javed Iqbal
College of Commerce, GC University, Faisalabad, Pakistan
Tel: 0092-304-942-4794 Email: Shahid_javed1020@yahoo.com
Hussain Tariq
College of Commerce, GC University, Faisalabad, Pakistan
Tel: 0092-333- 801-8047 Email: Husain4one@gmail.com
Raheel Mumtaz (Corresponding Author)
College of Commerce, GC University, Faisalabad, Pakistan
Tel: 0092-300-758-3133 Email: raheelmumtaz@gcuf.edu.pk
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
Introduction
Banking industry is perhaps most crucial financial intermediary in any country as it facilitate in two major
services, liquidity in monitoring services and information creator (Diamond & Dybvig, 1983). The behind reason
of economic growth of any nation depends upon the services provided by banking sector. Banks raise funds from
suppliers, lend money to customers, work as a major actor in primary market and ultimately work as a backbone
in the development of any economy.
Organizations competitiveness depends upon its competitive advantage, as there are two different views the
Industrial organizational view and Resource based view. The industrial organizational view interpret that
competitiveness can be achieved how a company respond to external opportunities and threats as competition,
technological changes and economic changes etc. It means that an organization has competitive advantage if it is
capable of exploit any opportunity in the market or respond to any external threat timely.
Whereas resource based view says that competitiveness can be achieved through how the organization is
internally strong and its internal policies, procedures and systems are so strapping which enable an organization
to gain competitive advantage. In this contemporary era the strategic approach articulated that the organization
will only be able to gain competitive advantage if such polices, procedures, system, and internal resources are
rare, dear, peerless, and nonsubstitutable. So in our study we are focusing both the internal and external factors
as determinants of organizations success. Unique services are being provided by most of banks therefore there is
a great competition in market. The current study is focusing which factors actually affect the organization
performance in banking sector of Pakistan.
Due to terrorism and non state actors influence there is less focus of international banks in Pakistan. Since last
many years there is less pressure from international banks but competition with in the country is still very high,
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there is a great demand of funds as compared to supply. Due to inflation, rapid increase in population, rise in
consumerism and change in life style of nation demand for money is increasing. Suppliers are demanding high
yields for deposits as they have fewer saving. As a result commercial banks profits may be low due to
unbalanced demand and supply. This unbalanced demand and supply for money is looking to affect the
commercial bank profit. This concept is same as suggested by various researchers (Allen, 1988; Foyston &
Almeida, 1992; Valverde & Ferna´ndez, 2007; Poghosyan, 2010). We are going to suggest the managers what
factors they should keep in view to boost the profitability of commercial banks in this tough situation of
unbalanced demand and supply.
Commercial banks in Pakistan have to focus on both internal and external factors which affect their profitability
recommended in various studies (Ben, Naceur, & Goaied, 2008; Omran & Naceur, 2011; Bonin, 2005; Bourke,
1989; Pasiouras & Kosmidou, 2007 ; Zopounidis, Tanna, & Pasiouras, 2009; Hassan & Bashir, 2003; Hawtrey &
Liag, 2008; Molyneux et al., 1994; Short, 1979; Smirlock, 1985; Williams, 2003). Although little research had
been conducted on, the determinants of profitability in the banking sector of Pakistan. According to the best
knowledge of authors this is the first study to investigate the determinant of profitability by using panel data in
Pakistan.
Section two will explain the literature review, section three present data and research methodology, section four
highlights findings of study and last section cover conclusion and recommendation for future researchers.
Literature Review
Commercial banks profitability determinants can be grouped namely into internal factors which are under the
management control as well as the external factors which are ahead of the management control. The internal
determinants give a reflection how the management policies and decisions are different regarding the assets
composition which means proportion of investment in current and non-current assets, capital adequacy which is
the debt to equity ratio we are considering because the debt financing and capital financing vary with respect to
risk and return, deposit composition interprets the proportion of current and fixed deposit, expense efficiency
means how efficiently the organization is managing and controlling its operative expenses, and how much they
depend on the debt leverage and liquidity management. These management induced determinants on the
commercial banks performance can be analyzed through comprehensive analysis of statement of financial
position and through statement of comprehensive income of the commercial banks. These internal determinants
which are under the management control we are considering in this study are similar to those determinants and
factors other researchers considering on the profitability of commercial banks (Bourke,1989; Molyneux &
Thornton, 1992; William et al., 1994; Molyneux et al. 1996; Pasiouras & Kosmidou, 2007;Zopounidis,Tanna, &
Pasiouras, 2009; Habibullah & Sufian, 2010;Mamatzakis & Remoundous, 2003;Williams & Nguyen, 2005).
Four internal factors which we have covered in this study are net advances as a percentage of total assets
(NAPTA), Times and savings deposits as a percentage of total deposits (TSATD),total expenditures as a
percentage of total assets(TEATA) and loan to deposit ratio (LTDR).
Net advances a percentage of total assets.
An important explanatory variable of bank performance is liquidity which is measured as a ratio of current assets
to fixed assets investments. Meeting the decreases in liabilities or to accommodate the current need of cash by
the bank, liquidity is very important for commercial banks profitability. There is a negative relationship between
liquidity and profitability means higher the liquid firm, more funds are kept in current assets such as cash and
cash equivalents, and less investment in advances and loans by the bank leads to lower return and profitability.
Because there is a negative relationship between liquidity and net advances as a percentage of total asset the ratio
which we have used for explanatory variable higher the ratio less the liquidity results in higher profitability.
Bourke (1989); Eichengreen & Gibson (2001) had suggested positive relationship between net advances as
percentage of total assets and profitability. Negative relationship is also suggested by Molyneux & Thornton
(1992). They articulate that this negative relationship is due to difference in demand and supply elasticity for
various loans combinations offered by the banks.
Time and savings deposits as a percentage of total deposits
The current deposits as a percentage of total deposits are the business current liabilities whereas the time and
saving deposits as a percentage of total deposits are the business long term liabilities when the ratio of long term
liabilities are high and ratio of short term liabilities is low mean high liquidity of the business and higher the
liquidity is associated with less profitability of the business. The same relationship is suggested by (Guru,
Stanton, &Shanmugan; Molyneux & Thornton, 1992).
Total expenditures as a percentage of total assets
Another internal aspect that can be projected to have significant outcome on profitability is efficiency in
expenses management. It is very straight forward that there is inverse relationship between expense ratio and
profitability suggested by many researchers such as (Kwan, 2008; Bonin et al., 2005).However it is not
necessary that expenditures reduce the profit, because more expenditure reflects greater activities in business and
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ultimately increase in revenues. So in order to access the efficiency of banks at expense-management it is
necessary to mention the activity level as well. To this extent in line with Steinherr & Huveneers (1994), the
banks total expenditures would be deflated by total assets to measures the firm specific expense management
efficiency by measuring the cost incurred per monetary units of assets this ratio will be then total expenditures as
a percentage of total assets hence it is expected that when the total expenditure as a percentage of total assets will
be high it will affect the profitability negatively.
Loan to deposit ratio
As commercial banks major profits are from interest income so the fourth internal factor which we have included
in the study is loan as a percentage of total deposit. High ratio is expected to have a positive relationship with
commercial banks profitability because high ratio of loan from total deposits of the bank actually generates the
return for bank. The variable we are including in our study is same as suggested by (Aysana & Pinar, 2008).
External determinants
Such factors which are beyond the management control namely external determinants those are the firm’s
specific determinants and environmental determinants. These includes firm size, inflation rate, market growth,
market interest, market share and sate bank of Pakistan regulations for commercial banks. Such determinants are
as much important for our study as the internal determinants of commercial bank profitability after the literature
reviewed the most researchers include in their study these variables determine the performance of commercial
banks profitability (Bourke, 1989; Molyneux & Thornton, 1992; William et al., 1994, Molyneux et al., 1994;
Ben, Naceur, & Goaied, 2008; Naceur & Omran, 2011; Bonnin, 2005; Bourke, 1989; Hassan & Bashir, 2003;
Hawtrey & Liag, 2008; Mollyneux et al.,1994; Short, 1979; Smirlock, 1985; William et al., 1994). In Pakistan
inflation is very unpredictable in Pakistan and its statistics vary among different statistics departments so that we
are incapable of including it into our study. Due to some limitations in current study we cover firm size and
regulations as external determinants.
Logarithm of total assets
The bank size is included as an independent variable to account for size related economies and diseconomies of
scale. It is worth noting that earlier researchers such as Heggested (1974); Smirlock (1985) has also considered
firm size in their profitability of larger banks with greater loans and product diversification and accessibility to
assets market that may not available for smaller banks. In most literature the total assets of the banks are used as
a proxy for bank size. However, since total assets deflated the other dependent variables in model such as ROA
it would be inappropriate to include total assets in its absolute terms as an independent variable so it has to be
transformed before including it into the model. Therefore the logarithm of the total assets will be included in the
model to proxy for firm size. It is also necessary to obtain a more meaningful coefficient for bank size in the
regression analysis since the other independent variables are also entered as ratios.
Regulations
Finally changes in the regulatory conditions in the banking sector can also affect the profitability of commercial
banks. In Pakistan the regulatory conditions in relation to entry barriers have remained largely unchanged over
the last decade. But the state bank of Pakistan had no major changes in banking regulations of Pakistan. That is
way we exclude this variable as this is not a major determinant of profitability of banks in Pakistan specifically.
Table 1: Variables Description
4. Variable specification: Dependent Variable
The dependent variable in the model specified is some measure of commercial bank profitability. According to
earlier studies on banks profitability different ratios are used as a measure of bank profitability because they are
not affected by changes in general price level due to inflation. The return on assets (ROA) which is the ratio of
net income to total assets, measures how profitabily and efficiently the management is using the companies total
assets. On the other hand the return on equity (ROE) which is the ratio of net income to total equity would
indicate return to shareholders on the book value of their investment. According to Bourke (1989); Molyneux &
Thornton (1992), total equity is assumed to indicate shareholders capital and reserve which are actually
undistributed net profits.
A problem that needs to be removed is that total assets and equity capital may not remain constant the whole
year. That’s why according to Frame & Holder (1994) average of values is used in the study.
There can be a problem of choice between pre-tax and post-tax profits. So we conclude that in the boundaries of
one nation there is same corporate tax for all the banks. So it cannot effect the significant of the profitability of
banks. And if corporate taxes are considered as a cost for the firm then the after-tax profits will represent more
appropriate results. We are using the return of assets after tax calculation as a dependent variable. But in line
with the above discussion the following measure of profitability are considered as alternative measures for the
dependent variable in this study:
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PBTA:profit before tax as a percentage of total assets
PATA:profit after tax as a percentage of total Assets
PBTE:profit before tax as a percentage of total equity
PATE:profit after tax as a percentage of total equity
Variable specification: Independent variable
According to Vong (1996) interest income accounts for about 80% of a countries commercial banks total
income, are obvious. The interest rates change on loans and the numerous forms of deposits and these various
forms of loans and compositions of deposits could be expected to have an impact on profitability. Also liquidity,
firm’s efficiency, assets composition and deposit composition as well as external factors such as firm size also
has significant impact on the commercial banks performance. So we are considering both internal and external
factors as independent variables as shown in the above table.
3. Research methodology
The accord generally reflected from the literature on commercial bank profitability was that the most fitting
model is of linear form. Many researchers Bourke (1989) ; Shorte (1979) had considered an array of other
models but arrive at conclusion that the linear model gives outcome as reliable and fine as any other form of
model. Hence we have also considered a multiple linear regression model to analyze the cross sectional time
series data to determine the commercial bank profitability in Pakistan. The pooled cross sectional time series
data is taken annually on random sample of five major commercial banks in Pakistan. These banks include
Allied bank limited, Bank alflah limited, Askari bank limited, Meezaan bank limited and United bank limited.
Due to lack of not easily quantifiable determinants of commercial banks performance like company image and
service quality have not been accounted for.
By keeping in view accounting for cross sectional differences, that is the linear profitability model may change
between cross sectional units and temporal differences that the linear profitability may change over time. The
reason for temporal differences and cross sectional differences may be due to such circumstances like economic
downturn or booms, different economic circumstances from year to year may be projected to have impact on
commercial banks performance so we include two dummy variables for these temporal and cross sectional
differences which are assumed to be limited to the intercept term in our model (Pindyck & Rubinfeld, 1991).
So our fully unrestricted model in which intercept change both from year to year and across cross sectional units
can be stated as
Equation
Уit = the yit showing dependent variables which may be the return on asset or equity either before tax or after tax
calculation
β0 = it shows the intercept in the model
Z = It is the dummy variable showing the year to year differences
H = It is the second dummy variable showing the cross sectional differences.
X = it show all the independent variable we have included in the model
For the dummy variable Hit which is institution specific we assign value 1 for ith firm and 0 otherwise. For the
period t=2 up to T. similarly we assign the dummy variable Zit the value of 1 for the tth year and 0 otherwise for
the year I=2 up to N years. Here we are assigning these values to the dummy variables for N-1 for differences in
cross section units and T-1 for differences from year to year to avoid the problem of multicollinearity.
If there is temporal stability in our model but the differences are only with respect to cross section units then our
model will be
Equation
If there is a cross sectional stability in our model but the differences are only with respect to time then the model
will be represented as follows.
Equation
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If there are both temporal stability and cross sectional stability is present in our model then there are no
differences both with respect to time and with respect to cross section units then our restricted model means the
intercept remain constant for different years and with cross section units to decide whether to use unrestricted
model or restricted model. The following F-test will be applied to compare both restricted and unrestricted model
(Doran & Guise, 1984; Pindyck & Rubinfeld, 1991). The restricted model having both cross section and
temporal stability will be as fellows.
So here we will use the F- test to compare these different models.
RSS(R)-RSS (UR)/M
F = ________________
RSS(R)-RSS (UR)/NT-K
RSS (R) Residual sum of square of restricted model
RSS (UR) Residual sum of square of the unrestricted model
M Number of linear constraints in the restricted model
NT Total number of observations
K Number of parameters in the unrestricted model
The procedure selected which model is to choose we compare the first model (which is fully unrestricted model
with respect to both cross sectional and temporal stability) with second model (which is restricted model with
respect to cross sectional stability). So if Fcal > FCV we reject the restricted model and fail to reject the
unrestricted model. Then we compare first model (which is fully unrestricted model with respect to both cross
sectional and temporal stability) and third model(which is restricted with respect to temporal stability) again our
decision criteria will be same to chose the model. Now we compare the second model (which is restricted model
with respect to cross sectional stability) and fourth model (which is fully restricted with respect to cross sectional
and temporal stability). In last we compare the third model (which is restricted with respect to temporal stability)
and forth one (which is fully restricted with respect to cross sectional and temporal stability).Following is the
comparison of our four model in tabular form
Table. 2. Comparison
Table. 3. Comparison results are as per the F-test.
After applying the F test we reached at the conclusion of selecting the fully restricted model both with respect to
temporal and cross sectional stability.
Findings:
3.1 Explanation
Table 4: Descriptive Statistics
The above table shows the descriptive statistics of the data on different variables we are including in the study.
The mean standard deviation minimum and maximum value is shown in the table. The data was collected after a
comprehensive analysis of balance sheet and profit and loss account using the standard formulas for different
ratios.
Diagnostics: Multicollenearity and Hetrosekedasticity
Table. 5. Correlation between different variables in the model
The above table is showing correlation between different variable in the model along with their significance. The
problem of multicollenearity arises when two independent variable are significantly correlated. The above table
showing all the variables are not significantly correlated with each other but a doubt is about LTDR and TSATD.
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So some researcher suggest to check the VIF between these variables and if VIF is greater than 5 or 1/VIF less
than .20 then there is a problem of multicollenearity in the model.As both VIF and 1/VIF is calculated as shown
in the table our model is free from the problem of multicollenearity.
Table 6: VIF
The second problem is of heteroskedasticity for which we are testing our model. When the independent variable
and error term are correlated with each other then the problem heteroskedasticity is present in our model we are
testing the model for this problem by applying the Breusch-Pagan / Cook-Weisberg test for heteroskedasticity.
For this our hypothesis is
H0: There is a constant variance (There is no heteroskedasticity in the model)
H1: There is no constant variance (there is heteroskedasticity in the model)
Breusch-Pagan / Cook-Weisberg test for heteroskedasticity
Ho: Constant variance
Variables: fitted values of ROAAT
chi2 (1) = 0.00
Prob > chi2 = 0.9906
After applying this test we are fail to reject H0 which means that we are accepting the null hypothesis that there
is constant variance and there is no heteroskedasticity in the model.
Table. 7: Fully Rescricted Model Regression Results
Results Interpretation
The above table shows the regression results of our model. According to our findings the net advances as a
percentage of total assets have a negative relationship with profitability and are according to expectation which
means that by 1 unit increase in NAPTA it causes decrease in the profitability by .0314537 units. There is also
inverse relationship between TSATD and profitability and by 1 unit increase in TSATD it causes decrease in
profitability by .0230072 units. By 1 unit increase in expenses it causes decrease in dependent variable by .10811
units. As the major profitability of the bank is from loan it gives to the customer the higher the loan to deposit
ratio impact the profitability positively. So by 1 unit increase in LTDR it causes increase in ROAAT by
.0302937 units as per our results. We also included one external factor in our study the logarithm of total assets
having negative impact on the banks performance showing as the firm size increases it negatively impacting the
profitability may be that the firm is not gaining the advantage of economy of scale and various other reasons may
be that the increasing size may lead to various type of mismanagement and inefficiency in the business and may
be due to complex environment. So by one unit increase in total assets it causes decrease in the dependent
variable by.5267252 units.
Conclusion and Recommendations
These results provide a roadmap to commercial bank managers of the successful determinants of industry
performance. After having these consequences the following recommendation can be beneficial to the industry
management, policy makers and other stakeholders. The management should follow some sort of specific
strategic planning instead of thumb rule while operating in the commercial bank industry. They have to keep in
mind what factors actually influence their strategies to pursue the performance of the banking industry and these
factors are both internal and external which we have included in the study. As some experts articulate that if we
enhance expenditures then hopefully the business will perform in a better way, Aftermaths will effect positively,
although our results are in a reverse way. So most important factor which we have considered is the expense
efficiency as having negative impact on the profitability the managers should pay attentions on controlling the
direct, operating and administration costs. The management can control cost may be through different type of
bargaining with the employees, marketing strategies such as unique services to the customer to attract cheep
deposits and compliance with corporate governance in the industry. The second important factor which we have
considered is the advances as a percentage of total assets and higher this ratio is expected to have positive impact
on the performance but our results are contrary. These contrary results suggest the management to focus on
demand and supply elasticity of different loans combinations. The loan to deposit ratio have a positive
relationship with profitability and more than 80% of the profit of commercial banks is from interest income, so
management should maintain balance between the deposits and loan while keeping in mind the other factors
such as liquidity. There is an unpredictable inflation in Pakistan and due to this many factors have totally
contrary results, so it is suggested that the manager must estimate the return on advances in real term and must
keep in mind the impact of this unpredictable inflation.
The eventual performance of commercial banks is entirely depends upon the management attitude toward risk.
Higher the liquidity means less the risk have negative impact on the profitability as concluded by the important
variable time and saving deposits as a percentage of total deposits, which we have considered in our study.
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Higher the ratio mean the bank has lower current liabilities as compared to long term liabilities which means the
bank in maintaining high liquidity which impacting the profitability negatively.
Managers must keep in mind not only the internal factors but also the external factors as higher the firm size is
expected to impact profitability in positive way but this is also reverse as per our results. The reason actually is
as business size is increasing the management is not taking advantage of the economy of production and
economy of scale.
In last there are some limitations of our study. The sample size which we included is small because of
unavailability of annual reports from various banks from the year 2004-2010 of Pakistani commercial banks. The
reason was that the annual reports were computerized since 2006. Not only have these five variables which we
considered actually impacted the profitability but there are many other variables also important like real interest
rate and inflation. As the inflation in Pakistan is very unpredictable we find it difficult to consider because of
differences in its disclosure by various statistics departments. We also ignored different variable which are not
easily quantifiable like customer service quality and corporate image.
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Table 1: Variables Description
Variables Definition/ Proxy Data source Expected Sign
ROAAT(Dependent) Return on assets after tax
calculations
Bank’s annual reports, SBP
Publications
NAPTA Advances net of provision
as a percentage of total
assets
Do -
TSATD Times and savings deposits
as a percentage of total
deposits
Do -
TEATA Total expenditures as a
percentage of total assets
Do -
LTDR Loan to deposit ratio DO +
LTA Logarithm of total assets Annual reports of commercial
banks
-
REGU Regulations State bank of Pakistan +
Table. 2. Comparison
First comparison First model fully unrestricted both
with respect to cross sectional and
temporal stability
Second will be restricted with
respect to cross sectional stability
Second comparison First model fully unrestricted both
with respect to cross sectional and
temporal stability
Third will be restricted with respect
to temporal stability
Third comparison Second will be unrestricted with
respect to temporal stability
Forth will be fully restricted model
both with respect to cross sectional
and temporal stability
Fourth comparison Third will be unrestricted with
respect to cross section stability
Forth will be fully restricted model
both with respect to cross sectional
and temporal stability
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Table. 3. Comparison results are as per the F-test.
Comparisons of
Models
RSSUR RSSR F Stat. Critical Value at 5%
Significance
Decision
criteria
Outcome
1 vs 2 2.959 5.479 1.3484 2.31 Fcal< Ftab Fail to reject Ho
1 vs 3 2.959 4.853 1.2161 2.39 Fcal< Ftab Fail to reject Ho
2 vs 4 5.479 7.646 1.51 2.53 Fcal< Ftab Fail to reject Ho
3 vs 4 4.853 7.646 2.3980 2.49. Fcal< Ftab Fail to reject Ho
Table 4: Descriptive Statistics
Variable Mean Std. Dev. Min Max
ROAAT 1.107685 .6005417 .1237 2.3489
NAPTA 55.1987 9.338679 35.02055 89.63002
TSATD 37.11605 11.20327 5.1293 59.9043
TEATA 8.254763 2.475094 1.128 11.9719
LTDR 68.44886 15.00701 7.07 90.19
LTA 8.353172 0.3840851 7.294408 9.096323
Table. 5. Correlation between different variables in the model
Variables NAPTA TSATD TEATA LTDR LTA
NAPTA 1.0000
TSATD
0.0572
0.7442
1.0000
TEATA
-0.5446
0.0007
-0.0638
0.7157
1.0000
LTDR
0.4190
0.0122
0.4431
0.0077
-0.0024
0.9892
1.0000
LTA
-0.1698
0.3296
0.0803
0.6466
0.2544
0.1402
0.2772
0.1069
1.0000
Table 6: VIF
Variable VIF 1/VIF
NAPTA 2.13 0.468745
TSATD 2.01 0.496596
TEATA 1.64 0.610770
LTDR 1.34 0.743504
LTA 1.23 0.810191
Table. 7: Fully Rescricted Model Regression Results
Variables β Stand. Error T Stat. P-value
NAPTA -.0314537 .013773 -2.28 0.030
TSATD -.0230072 .0091158 -2.52 0.017
TEATA -.10811 .0455253 -2.37 0.024
LTDR .0302937 .008327 3.64 0.001
LTA -.5267252 .2547193 -2.07 0.048
_cons 6.916503 2.305483 3.00 0.005
Notes: R2
= 0.3764, Adjusted R2
= 0.2689, F stat. = 3.50 and Prob > F = 0.0135
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