This document discusses a study examining the impact of monetary policy on the financial performance of banks in Pakistan from 2007-2011. It uses interest rates set by the State Bank of Pakistan as a measure of monetary policy. The study finds that higher interest rates, representing a tighter monetary policy, have a significant negative relationship with banks' financial performance as measured by their return on assets and return on equity. The document provides background on monetary policy, its tools of expanding or contracting the money supply, and how interest rates can affect bank risk-taking and performance. It also reviews prior literature finding that higher capitalized banks may increase risk-taking less in response to lower rates than other banks.
With banks being the major avenue that the CBK relies on to execute monetary policy, the paper
sought to investigate whether commercial banks are actually responsive to monetary policy.
The study used an Error Correctional Model to estimate a relationship where lending rates were
treated as the dependent variable while the independent variables were monetary policy,
specifically CBR. The model was also expanded to include additional independent variables
specifically monetary policy transmission channels. These include the credit channel which is
represented by credit to the private sector, exchange rate channel represented as nominal
exchange rate and asset price channel. For consistency, inflation and economic growth were
included in the model because these are the targets of monetary policy.The study findings
showed that there was a long run relationship between lending rates and Central Bank Rate,
Exchange Rates, Asset Price, Credit to the Private Sector, Economic growth and Inflation Rates.
The results also indicated that CBRand Inflation cause lending rates to increase in the short run
while credit to the private sector causes lending rates to decrease in the short run. A statistically
significant relationship was also established between lending rates and CBR, credit to the
private sector. The study concludes that commercial banks’ lending rates are indeed positively
responsive to CBR and that in order to spur economic growth; commercial banks’ lending rates
should be stabilized by streamlining the economic environment in which commercial banks
operate, therefore ensuring stable rates of borrowing.
The aim of this paper is to examine the impact of bank minimum capital requirement on credit supply in Ivory Coast, over the period from 1982 to 2016. To this end, the ARDL method was used to study the nature of the relationship between our explanatory variables and bank credit supply in Ivory Coast. The study indicates some major results. The results showed that in the short term, real GDP per capita and bank size influence credit supply in Ivory Coast. Real GDP per capita acts negatively on credit supply in the short run while bank size has a positive influence on banks’ capacity to finance the economy. In the long run, the Cooke ratio and the openness rate have an impact on bank credit supply in Ivory Coast. The recovery of bank minimum capital requirements positively influences bank credit supply while the openness of the economy negatively impacts banks’ ability to offer bank credit. In terms of economic policies implications, monetary authorities must enforce and respect the policy of increasing bank minimum capital requirements. They must encourage banks to increase their banking assets.
With banks being the major avenue that the CBK relies on to execute monetary policy, the paper
sought to investigate whether commercial banks are actually responsive to monetary policy.
The study used an Error Correctional Model to estimate a relationship where lending rates were
treated as the dependent variable while the independent variables were monetary policy,
specifically CBR. The model was also expanded to include additional independent variables
specifically monetary policy transmission channels. These include the credit channel which is
represented by credit to the private sector, exchange rate channel represented as nominal
exchange rate and asset price channel. For consistency, inflation and economic growth were
included in the model because these are the targets of monetary policy.The study findings
showed that there was a long run relationship between lending rates and Central Bank Rate,
Exchange Rates, Asset Price, Credit to the Private Sector, Economic growth and Inflation Rates.
The results also indicated that CBRand Inflation cause lending rates to increase in the short run
while credit to the private sector causes lending rates to decrease in the short run. A statistically
significant relationship was also established between lending rates and CBR, credit to the
private sector. The study concludes that commercial banks’ lending rates are indeed positively
responsive to CBR and that in order to spur economic growth; commercial banks’ lending rates
should be stabilized by streamlining the economic environment in which commercial banks
operate, therefore ensuring stable rates of borrowing.
The aim of this paper is to examine the impact of bank minimum capital requirement on credit supply in Ivory Coast, over the period from 1982 to 2016. To this end, the ARDL method was used to study the nature of the relationship between our explanatory variables and bank credit supply in Ivory Coast. The study indicates some major results. The results showed that in the short term, real GDP per capita and bank size influence credit supply in Ivory Coast. Real GDP per capita acts negatively on credit supply in the short run while bank size has a positive influence on banks’ capacity to finance the economy. In the long run, the Cooke ratio and the openness rate have an impact on bank credit supply in Ivory Coast. The recovery of bank minimum capital requirements positively influences bank credit supply while the openness of the economy negatively impacts banks’ ability to offer bank credit. In terms of economic policies implications, monetary authorities must enforce and respect the policy of increasing bank minimum capital requirements. They must encourage banks to increase their banking assets.
The Impact of Monetary Policy on Economic Growth and Price Stability in Kenya...iosrjce
The government of Kenya’s economic blueprint dubbed ‘Kenya Vision 2030’ acknowledges the
importance of maintaining a stable macro-economic environment. Despite Kenya implementing monetary
policy aimed at achieving stable prices and fostering economic growth, the economy has been reporting low
economic growth and high rates of inflation. These implies there is still a point of disconnect between what
Central bank of Kenya Pursues and the outcome of the objectives. In this study, structural vector autoregresion
(SVAR) model is estimatedto trace the effects of monetary policy shocks on economic growth and prices in
Kenya. Three alternative monetary policy instruments were put into use i.e. broad money supply (M3), interbank
lending rate (ILR) and the real effective exchange rate (REER). The study found evidence that monetary policy
innovations carried out on the quantity-based nominal anchor (M3) has modest effects on economic growth and
prices with a very fast speed of adjustment. Innovations on the price-based nominal anchors (ILR and REER)
have relative and fleeting effects on real GDP. The study recommended that Central Bank of Kenya should
place more emphasis on the use of the quantity-based nominal anchor rather than the price-based nominal
anchor
This presentation shows a basic background on the monetary policy in Bangladesh showing the key features of the monetary policy introduced by Bangladesh Bank.
Monetary policy is how a central bank acts in its economic environment. A central bank is a national (or, in the case of the European Central Bank, a supranational) institution. Mostly the primary goal is to maintain price stability. Another common goal is to support the economy if it does not inhibit the achievement of price stability to a risky extent. This chapter examines what different costs arise due to inflation (increasing prices) and why it makes sense to keep inflation at a moderate level, to maintain price stability respectively
Impact of Firm Size on Capital Budgeting Techniques: An Empirical Study of Te...Muhammad Arslan
This study examines the type of capital budgeting methods used by textile firms in Pakistan and impact of firm
size on these methods. This study also investigates the relationship between the total assets of the firm and
annual turnover of the firm according to primary capital budgeting technique used. Questionnaire method is used
as a source of gathering primary data. SPSS is used as tool for analysis of data. Cross tabulation is applied on
each variable. Chi square test is also applied to investigate the relationship between total assets of firm and total
turnover of the firm according to primary capital budgeting technique used. Findings of this study reveal that net
present value method and internal rate of return are two mostly used methods. Findings also show that there is no
relationship between the total assets of the firms and turnover of the firm according to capital budgeting
technique used by firms. These results are well supported by the literature.
Impact of Brand Image and Service Quality on Consumer Purchase Intention: A S...Muhammad Arslan
The objective of this research is to determine the relationship between brand image, service quality and price on
consumer purchase intention. Normative and informative susceptibility has indirect effect on consumer purchase
intention. The empirical analysis were determined by collecting data from sample of 301 consumers of large
retail stores. The findings of study reveal the positive effect of brand image and service quality on consumer
purchase intention. Results reveal the insignificant relationship between price and consumer purchase intention.
The findings also documented that consumers in large retail stores don’t bother prices because consumers
consider that the stores charge reasonable prices. Most of consumer’s purchases depend upon the brand image
and service quality. Normative and informative susceptibility have positive effect on brand image. The
recommendations and suggestions are very helpful for managers and operators of large stores. Brand image
depends on informative and normative susceptibility.
The Impact of Monetary Policy on Financial Performance: Evidence from Banking...Muhammad Arslan
Interest rate an important indicator of monetary policy always has major impact on financial sector performance.
The purpose of this paper is to enlightened the monetary policy effect on banking sector stability and performance
by investigating the casual relationship between interest rate imposed by state bank of Pakistan and bank financial
performance taken as ROA and ROE. Highlighting the importance of monetary policy in banking sector, this study
shall focus in depth over its impact on performance of banking industry of Pakistan by studying monetary
transmission over the past five year (2007-2011), using interest rate as its measure. Using correlation analysis
followed by ordinary Least Square regression carries the empirical analysis of the study. Firm size is taken as
control variables for the study as firm size have significant impact on financial performance of banks. The finding of
study reveal that interest rate taken as measure for monetary policy has significant inverse relationship on firm
financial performance measured, which is measured by ROA and ROE.
The Impact of Monetary Policy on Economic Growth and Price Stability in Kenya...iosrjce
The government of Kenya’s economic blueprint dubbed ‘Kenya Vision 2030’ acknowledges the
importance of maintaining a stable macro-economic environment. Despite Kenya implementing monetary
policy aimed at achieving stable prices and fostering economic growth, the economy has been reporting low
economic growth and high rates of inflation. These implies there is still a point of disconnect between what
Central bank of Kenya Pursues and the outcome of the objectives. In this study, structural vector autoregresion
(SVAR) model is estimatedto trace the effects of monetary policy shocks on economic growth and prices in
Kenya. Three alternative monetary policy instruments were put into use i.e. broad money supply (M3), interbank
lending rate (ILR) and the real effective exchange rate (REER). The study found evidence that monetary policy
innovations carried out on the quantity-based nominal anchor (M3) has modest effects on economic growth and
prices with a very fast speed of adjustment. Innovations on the price-based nominal anchors (ILR and REER)
have relative and fleeting effects on real GDP. The study recommended that Central Bank of Kenya should
place more emphasis on the use of the quantity-based nominal anchor rather than the price-based nominal
anchor
This presentation shows a basic background on the monetary policy in Bangladesh showing the key features of the monetary policy introduced by Bangladesh Bank.
Monetary policy is how a central bank acts in its economic environment. A central bank is a national (or, in the case of the European Central Bank, a supranational) institution. Mostly the primary goal is to maintain price stability. Another common goal is to support the economy if it does not inhibit the achievement of price stability to a risky extent. This chapter examines what different costs arise due to inflation (increasing prices) and why it makes sense to keep inflation at a moderate level, to maintain price stability respectively
Impact of Firm Size on Capital Budgeting Techniques: An Empirical Study of Te...Muhammad Arslan
This study examines the type of capital budgeting methods used by textile firms in Pakistan and impact of firm
size on these methods. This study also investigates the relationship between the total assets of the firm and
annual turnover of the firm according to primary capital budgeting technique used. Questionnaire method is used
as a source of gathering primary data. SPSS is used as tool for analysis of data. Cross tabulation is applied on
each variable. Chi square test is also applied to investigate the relationship between total assets of firm and total
turnover of the firm according to primary capital budgeting technique used. Findings of this study reveal that net
present value method and internal rate of return are two mostly used methods. Findings also show that there is no
relationship between the total assets of the firms and turnover of the firm according to capital budgeting
technique used by firms. These results are well supported by the literature.
Impact of Brand Image and Service Quality on Consumer Purchase Intention: A S...Muhammad Arslan
The objective of this research is to determine the relationship between brand image, service quality and price on
consumer purchase intention. Normative and informative susceptibility has indirect effect on consumer purchase
intention. The empirical analysis were determined by collecting data from sample of 301 consumers of large
retail stores. The findings of study reveal the positive effect of brand image and service quality on consumer
purchase intention. Results reveal the insignificant relationship between price and consumer purchase intention.
The findings also documented that consumers in large retail stores don’t bother prices because consumers
consider that the stores charge reasonable prices. Most of consumer’s purchases depend upon the brand image
and service quality. Normative and informative susceptibility have positive effect on brand image. The
recommendations and suggestions are very helpful for managers and operators of large stores. Brand image
depends on informative and normative susceptibility.
The Impact of Monetary Policy on Financial Performance: Evidence from Banking...Muhammad Arslan
Interest rate an important indicator of monetary policy always has major impact on financial sector performance.
The purpose of this paper is to enlightened the monetary policy effect on banking sector stability and performance
by investigating the casual relationship between interest rate imposed by state bank of Pakistan and bank financial
performance taken as ROA and ROE. Highlighting the importance of monetary policy in banking sector, this study
shall focus in depth over its impact on performance of banking industry of Pakistan by studying monetary
transmission over the past five year (2007-2011), using interest rate as its measure. Using correlation analysis
followed by ordinary Least Square regression carries the empirical analysis of the study. Firm size is taken as
control variables for the study as firm size have significant impact on financial performance of banks. The finding of
study reveal that interest rate taken as measure for monetary policy has significant inverse relationship on firm
financial performance measured, which is measured by ROA and ROE.
Effects of Pre-Announced Product Characteristics on Customer’s Purchase Inten...Muhammad Arslan
The purpose of this paper is to analyze that which attributes of NPP effect on the customer decision-making
regarding the purchase intention of the customer. As in the customer decision making process, persuasion stage
have most influencing effect in which the attributes of the new product seems to be have a strong impact on the
purchase intention; this paper aims to empirically verify the effects of the attributes of the new product on the
customer’s purchase intention for the new preannounced product. Adopted questioners were used as primary
source for data collection and cross tabulation method is used to analyze the data. The finding of this paper
shows the positive impact of relative advantage, compatibility, obserbility and triablity on the customer’s
purchase intention while the complexity has the negative relation to the purchase intention. By having these
aspects in view it will be helpful to get succeed the new product. This paper provide a framework that how new
products can be more successful and more quickly diffused in the market and let consumers to post pond their
needs until the arrival of the product. This can also be helpful to increase the percentage of the innovators in the
diffusion cycle of the innovation.
Intellectual Capital and Its Impact on Financial Performance: A Study of Oil ...Muhammad Arslan
The study examines the Intellectual Capital (IC) performance of oil and gas sector of Pakistan over the period of 2007 to 2011 and its impact on corporate financial returns. The study uses value added intellectual coefficient (VAICit™) to measure IC performance and its various components of VAICit™ like (HCEit, SCEit and CEEit) and its impact on financial performance (ROEit, ROIit and EPSit). Micro panel data of oil and gas sector registered in KSE-100 index is collected from their consolidated annual reports over the period of 2007 to 2011. The IC performance is measured by Ante Pulic Model (VAICit™) and its effect on corporate returns (ROEit, ROIit and EPSit) is tested by Random Effect Model estimation. Hausman test suggests that study accepts null hypothesis (Chi2. Prop > 0.05) where for ui is uncorrelated with regressor means that random effect is preferred versus alternative fixed effect in all the proposed research models. The study reveals that VA is considered an important component for measuring the VAICit™ performance and it has positive and significant relationship with firm’s profitability (EPSit) and HCEit and SCEit have positive and significant relationship with firm’s financial performance (ROEit and ROIit) respectively. So, this study explores that Intellectual Capital Efficiency (ICE) has relatively larger contribution for measuring the VAICit™ performance where HCEit and SCEit execute substantive role to accelerate the financial performance of oil and gas sector of Pakistan as compare to tangible assets.
Impact of Social Media on Organizational Culture: Evidence from PakistanMuhammad Arslan
This paper investigates the impact of social Media on Organizational culture. The approach used in this paper
was to give the application and significance of development of Social media for organizations. With an
introduction to social media, organizational culture is focused by studying communication, business focus,
workplace harmony, workplace behaviors, and business discipline. A self-administered survey is used to collect
responses from employees working at different organizations through e-mail and various social media tools. The
main result of the research is the validation of the research framework of employees operating in the SME’s of
Pakistan. It has been found that organizational culture is considerably affected by development and application
of social media for business related activities in organizations.
Unemployment and Its Determinants:A Study of Pakistan Economy (1999-2010)Muhammad Arslan
This study has been conducted to determine the determinants which cause the unemployment in economy of
Pakistan for the period of 1999-2010. Unemployment is political and social issue in all the countries. In this
foreign direct investment, gross domestic product rate, CPI based inflation rate and population growth rate is
taken as explanatory variables. In this study ordinary least square model is used for determining the results.
Findings of this paper shows that foreign direct investment, gross domestic product rate and CPI based inflation
rate has negative impact on unemployment. Population growth rate has positive relationship with unemployment
and it contributes to unemployment. This study also confirmed the tradeoff between inflation and unemployment.
Improving Productivity through Appropriate Performance Appraisal in Pakistan ...Muhammad Arslan
The purpose of this study is to analyze the impact of performance appraisal on productivity. Appraisal tools are
used to measure the output of workers which are compared with the given tasks with specific working
environment in designing these tools there is three step process define the job, appraise the performance and
providing the relative feedback. The manager should take keen in designing. Cross tabulation methods is used to
analyze this phenomenon. Face to face interview and questionnaire will be the research strategy and this will be
cross sectional study i.e. one time study; data collection method will be secondary data, primary data through
random sampling will be collected from the contractors of transport companies of Pakistan State Oil Limited
and general analytical method will be used for data analysis. The finding of study suggests that performance
appraisal system has significant effect on personal skill and by using the combination of two methods; rating and
narrative method leads us improvement in productivity of the organization.
Effect of Parenting Style on Child Behavior: A Qualitative AnalysisMuhammad Arslan
Parting styles and its impact of child behavior is core phenomena of behavioral science that needs specific
attention from researcher and practitioner around the globe. The purpose of present qualitative study is to explore
the new trend of parenting style emerging in the society and their impact on child behaviors by using
unstructured interviews trough homogeneous sampling of parents located in Islamabad and native areas. The
data gathered from unstructured interviews was transcribed and processed through thematic analysis using NVivo
10 software. The findings of study reveal the notion that ultimately behavior of child depends upon
parenting style and many factors contribute in shaping parenting style that may be external environment, support,
love, affection and opportunities. Effective communication is the ultimately outcome that is effective among
majority of parents and that can be used by parents in accessing their child behavior and adjusting their parenting
strategies
Impact of Social Media on Organizational Culture: Evidence from PakistanMuhammad Arslan
This paper investigates the impact of social Media on Organizational culture. The approach used in this paper
was to give the application and significance of development of Social media for organizations. With an
introduction to social media, organizational culture is focused by studying communication, business focus,
workplace harmony, workplace behaviors, and business discipline. A self-administered survey is used to collect
responses from employees working at different organizations through e-mail and various social media tools. The
main result of the research is the validation of the research framework of employees operating in the SME’s of
Pakistan. It has been found that organizational culture is considerably affected by development and application
of social media for business related activities in organizations.
Effect of Employee Satisfaction on Intrapreneurship: An Analysis from Service...Muhammad Arslan
This paper seeks to investigate the relationship between employee satisfaction and intrapreneurship in the service
industry of Pakistan. In the competitive global environment, innovativeness in the products and services along
with new technology advancements is key for the success of firms. In existing firms, the new idea generation and
new business expansions in existing markets is a very crucial element. For achieving this objective,
organizations rely upon their employees because the intrapreneurs are employees of the firm. Employee plays an
important role in entrepreneurial activities. For getting the best out of the employees employee satisfaction with
the job is a crucial element which may depend on several factors. Organizational characteristics ,values and
employee related factors can lead an organization toward internal advancements like technology development,
generation of ideas or self-renewal process and innovativeness in products/services and new business expansions
that all will ultimately lead organization toward the more productivity and firm growth and business
development. Survey based study has been done and the data has been collected through a survey Questionnaire.
Sample of the study is 150 employees from the service sector of Pakistan. To check the relationship between the
variables the multiple response method has been used. With the help of statistical software SPSS cross tabs
tables has been generated. The findings of study reveal that role clarity and role conflict among the employees or
the relationship between the employees along with remuneration, general satisfaction with the work and job
stability of the employee decide about the employee satisfaction. Employee satisfaction has a positive
relationship with the intrapreneurship.
Corporate Governance and Firm Performance: The Role of Transparency & Disclos...Muhammad Arslan
Purpose: This purpose of this paper is to empirically examine the relationship between transparency and disclosure and firm performance. Highlighting the importance of corporate governance in banking sector, the paper has focused in depth over its role, level and its impact on performance in banking industry of Pakistan. Design/methodology/approach: The paper access this purpose by constructing transparency and disclosure index for the past five year 2007-2011, using proxies for three sub-categories which are board and management structure disclosure, ownership structure disclosure and financial transparency disclosure. The paper also investigated structural changes of T&D Index and its effect on bank financial performance over the sample of 30 banks operating in Pakistan. Findings: Empirical analysis results by using ordinary least square regression model, reveals that financial performance is positively related to the transparency and disclosure and their sub levels except ownership structure disclosure which has negative relation with both ROA and ROE. Furthermore the average T&D level in Pakistani banking sector is above average. Practical implications: The current research paper aims for important policy implementation to reduce information asymmetry and improve corporate governance and firm performance in banking sector of Pakistan.
MACROECONOMIC FOCUS AND INDUSTRY ANALYSIS .docxsmile790243
MACROECONOMIC FOCUS AND INDUSTRY ANALYSIS 1
MACROECONOMIC FOCUS AND INDUSTRY ANALYSIS 2
Milestone Two
Macroeconomic Focus and Industry Analysis
NOTE: highlighted any change you made. Know which one is revised. Thanks.
Note: See all highlighted on yellow comments and revised it.THANKS.
Macroeconomic Focus and Industry Analysis
Macroeconomic forecast of the monetary school of thought.
From a monetarist perspective, regulation of the flow and circulation of money is important in determining and influencing preferred economic conditions in the United States. Reducing the circulation of money in the economy has many effects on the macroeconomic environment and determines the activities of other stakeholders in the financial market. From a monetarist school of thought, the government has sole responsibility to both country and citizens in ensuring favorable monetary policies are implemented that are akin to the prevailing economic conditions through the control of inflation and prevention of deflation in the country (Fair, 2011).
Reducing the supply of money in the economy has effects on the macro-economic Cory Kanth:
This point is not clear. It needs clarification in terms of better explanation.
environment as earlier mentioned. Reducing money circulation has both short run and a long run effect that shift practices in the economic environment. For instance, consumer spending is affected by the implementation of monetary policies. When the government implements monetary policies that do not favor money circulation, consumer spending capabilities are significantly reduced (Fair, 2011). The reduction in the spending is due to the reduced flow of money in the financial market which limits the funds accessible to consumers in the market. This policy is usually exercised in a bid to control inflation in the market where prices go up due to increased demand catalyzed by the availability of money in the hands of the spenders.
Reducing the growth of money circulation from a monetary perspective is empirical in determining the cost of labor. When there is a circulation of money in the market, individuals can opt for willing unemployment due to the availability of funds through other sources other than the low paying jobs (Gnimassoun & Mignon, 2015). Further analysis on the effect of reducing money circulation is the government stabilizes the prices of labor meaning little choice is left for personnel who may discriminate employment due to reduced wages or low salaries.
Investment spending is a factor directly affected by the increase in interest rates. This is because investors avoid high lending rates due to high interests that are amassed over operational periods. Moreover, increased lending rates affect investment spending since capital and ...
Estimation of Net Interest Margin Determinants of the Deposit Banks in Turkey...inventionjournals
Banks, which are the irreplaceable intermediaries of the financial system, are financial institutions that significantly contributeto economic development. The basiccriterion that indicates the efficiency of the intermediation activities of banks is the net interest margins. These costs are assumed to be high for developing countries such as Turkey. The degree to which banks are willing to redeem the funds they collect as credit to the system is directly related to how low their intermediation costs will be. In this paper, it is aimed to estimate the net interest margin determinants of deposit banks in Turkey. Three different panel data models are used for this purpose. These are the Fixed and Random Static models and the GMM (Generalized Moment Models) Dynamic model
Lesson 6 Discussion Forum Discussion assignments will beDioneWang844
Lesson 6 Discussion Forum :
Discussion assignments will be graded based upon the criteria and rubric specified in the Syllabus.
550 Words
For this Discussion Question, complete the following.
1. Review the two articles about bank failures and bank diversification that are found below this. Economic history assures us that the health of the banking industry is directly related to the health of the economy. Moreover, recessions, when combined with banking crisis, will result in longer and deeper recessions versus recessions that do occur with a healthy banking industry.
2. Locate two JOURNAL articles which discuss this topic further. You need to focus on the Abstract, Introduction, Results, and Conclusion. For our purposes, you are not expected to fully understand the Data and Methodology.
3. Summarize these journal articles. Please use your own words. No copy-and-paste. Cite your sources.
Please post (in APA format) your article citation.
Reply to Post 1: 160 words and Reference
Discussion on Bank’s failures and its diversification
Over the last two decades, business cycle volatility has decreased in the US. For example, some analysts claimed that companies handle inventory better today than ever, or that advances in financial systems have helped smooth industry volatility. Some emphasized stronger economic policy. Banking changes were also drastic in this same era, contributing to the restructuring and convergence of massive, global banking institutions in a better-organized structure. The article (Strahan, 2006) points out that some regulatory reform driven by individual countries rendered it possible for banks to preserve their resources and income by gradually diversifying from local downturns. Both low state volatility rates and a decline in partnerships between the local market and the central banking sector is a net influence on the diversification in banks. Considering the less fragile state economies following these intergovernmental financial reforms, there are some signs that financial convergence – while certainly not the only piece of the puzzle – has been less unpredictable.
Another article (Walter, 2005) argues that a long-standing reason for bank collapses during the crisis is a contagion, which contributes to systemic bank failures and the collapse of one bank initially. This indicates why several losses in the crisis period were unintentional, which ensured that the banks remained stable and endured without contagion-induced falls. The response to the contagion was the central government’s deposit policy, bringing an end to defaults. Nevertheless, since the sequence of errors began in the early 1920s, well before contagion was evident, the underlying trigger must be contagion.
Now it seems like the bank sector has undergone a shake-out that was worsened during the crisis by the deteriorating economic conditions. Although the reality that incidents occurred almost syno ...
The main purpose of this research is to study and highlight that central bank of Jordan (CBJ) plays an important role in economic development. The objective of the financial organization shall be to keep up financial and money stability, to confirm the interchangeability of the Dinar, and to contribute in achieving the banking and money stability within the Kingdom likewise as promoting sustained economic process in accordance with the overall economic policies of the government. To achieve the above- mentioned objectives, CBJ assumes many tasks portrayed in drawing and implementing the financial policy within the Kingdom through an integrated system of monetary policy instruments, setting a evaluation policy of the Dinar compatible with the Jordanian economy, maintaining and managing the Kingdom’s reserves of gold and foreign currencies, regulation credit within the Jordanian economy so as to realize financial and money stability likewise as comprehensive economic process, and issue and regulation bank notes and coins. Subsequently, the central bank plays necessary role within the economic resource allocation of the country. The banking industry may be a major issue that affects the organization of social and economic life cycle within the economies of the planet. it is thought about as associate degree indicator of economic and social growing.. Also, developed financial set up ought to be characterized by the existence of a contemporary and complicated banking industry that contributes to achieving economic balance. It conjointly encourages domestic and foreign investment through the banking system’s ability to states. The aim of the banking industry is to draw in savings domestically and abroad, and direct those savings into productive investment. As a result, this contributes to the accomplishment of economic and social development method, and conjointly facilitates investment activity.
2. Zaman et al., 2014
gearing up the financial system; new products and innovation cater a large population of investor as well as
regulatory authorities to meet the challenges faced by the system. One of the major cause analyzed during the
financial crises 2007-2009 was the bank risk taking was the impact of monetary policy on it(Taylor & J.B,
2009).Low level of short term interest have often been as one of the indicator contributing to risk taking by the
banks and ultimately the performance of the bank.(Adrian, et al 2009; Borio, et al 2008).Excess liquidity created by
the loose monetary policy could encouraged banks to increase their actual risk positions in two ways .First if the
interest rate is low it will impact income, valuation and cash flows which in turn revise how banks measure
estimated risk. Secondly low return on investment such as government securities, complied with lower cost for
obtaining new debt for investor (including financial institution) and barrower to take on more risk. This is due to
contractual behavior or institution reasons (Rajan & R.G, 2005).
As there is large room over development of theoretical literature .many factor which differently impact across
banks has not been considered. Dell Ariccia, et al (2010) find that a policy cut rate ,well capitalized banks will tend
to increase risk taking to great extent than the other institution.(Beltratti & Stultz, 2009; Demirguc Kunt, et al 2010)
indicate in their finding that the banks with greater Tier 1 capital will perform better in the initial stages of crisis.
Overall, the empirical literature tends to support the view that more capital helps banks to increase their probability
of survival and their profitability during crises(Berger & Bouwman, 2010).
2.1 Dimensions of Monetary Policy
Accurate measurement of the policy stance is an important factor for the evaluation of alternative theories of
communication or sometimes for the gaining of quantitative estimate of monetary policy changes on output and
inflation,(Bernanke, S, & Mihov, 1998).Monetary policy measurement is not so easy as if the monetary policy is reaching
to the state of economy then it is likely to influence it at current period performance however its exogenous part will
ultimate effect the result or outcome. Therefore extreme care has been taken on measurement of monetary policy.
There are a variety of empirical approaches has been used in order to measure the stance of monetary policy
the traditional approach is to use a single variable like interest rate, CRR or LRR.(B. S. Bernanke & Blinder, 1992)
and (Sims, 2002) in their studies consider that the federal funds rate could be a better indicator of policy rate.
The rate of interest the State sets for banks directly affects the supply of money in an economy. For instance if
the interest rate is set higher, the cost of borrowing increases as a result of which less people demand money or
funds. Money supply gradually decreases in the economy. This is why interest rates should neither be set too high to
discourage all kinds of productive investments, or set too low to aggravate demand and circulation of money to such
an extent that it becomes difficult to manage; as the former leads to reduction in economic activity and rise in
unemployment, while the latter results in inflation and depreciation in value of currency (Qayyum, 2002).
2.3 Expansionary Vs Contractionary Monetary Policy
Monetary policy, according to Kimberly Amadeo (2012), is used by central banks to control the amount of
liquidity in the economy. Liquidity can be defined as the total amount of money circulating in a country; it may be
in the form of cash, credit or even money market mutual funds. There are two types of monetary policies:
Expansionary and Contractionary.
Theoretically under an expansionary monetary policy, the aim is to increase the money supply. By lowering
interest rates, a general rise in the supply of money is achieved. It usually happens that as the cost of borrowing
drops down, it becomes easier for people to afford loans, investments rise in the economy, which results in greater
employment opportunities because people start to spend more than usual.
To the contrary, under a contractionary monetary policy the aim is to decrease the supply of money, usually
this is done by the state in an attempt to counter inflation. Hence as cost of borrowing increases, loans become
expensive and people borrow less. Aggregate spending drops so do investments. Moreover, due to higher interest
rates, banks' deposits become more attractive as they offer better returns on savings, as a result of which, people tend
to save and spend less.
So the tools of monetary policy are used by the state bank as means to manipulate and control liquidity in the
economy.
In this study we will use interest rate set by State Bank of Pakistan as the indicator to measure the monetary
policy over the year.
2.3 Dimensions of Bank Performance
The question is how interest rates and money supply influence a bank's performance. Return on assets and
return on equity are two financial ratios which are commonly used to measure a firm's performance. According to
120
3. J. Basic. Appl. Sci. Res., 4(8)119-124, 2014
Price Water House Coopers (2008), key performance indicators for banks is its ROA and ROE ratios as they are
composed of some very important variables which can measure performance quite effectively.
3. THEORETICAL FRAMEWORK
The literature suggests that the monetary policy directly affect the bank performance. Monetary policy imposed
by the central bank has positive impact on bank performance (Taylor & J.B, 2009). (Maddaloni & Peydro, 2011)
indicates that the interest rate will lead a bank towards risk taking behavior and ultimately it is related with the
performance of the bank. The quantitative measures regulate the total quantity of credit without taking into account
the uses to which such credit is put. Such measures affect the economy as a whole and are non-discriminatory in
character. There are three quantitative measures of monetary policy: 1) Bank rate, 2) Open market
operations,3)Variable cash reserve ratio. We use interest rate as measure of monetary policy.
This study investigates the question, how interest rates and money supply influence a bank's performance?
Financial performance of the bank is subject of Shareholder or stakeholder interest so it can be calculated from the
return on investment perspective and earnings ratios usually consist of two ratio which are ROA(return on asset) &
ROE(return on earning).
According to Price Water House Coopers (2008), key performance indicators for banks is its ROA and ROE
ratios as they are composed of some very important variables which can measure performance quite effectively.
Firm size in this study is used as control variable,
Figure 1: Theoretical Model
Independent Variable Dependent Variable
Source Adopted: (Maddaloni & Peydro, 2011; Taylor & J.B, 2009)
3.1 Hypothesis Development
The literature suggests that the monetary policy directly affect the bank performance. Monetary policy imposed
by the central bank has significant impact on bank performance(Taylor & J.B, 2009). Maddaloni and Peydrò, (2011)
indicates that the interest rate will lead a bank towards risk taking behavior and ultimately it is related with the
performance of the bank. Based on the forgone literature review the hypothesis for the study is as follows
H1: Monetary Policy has negative effect on financial performance of the bank?
4. RESEARCH METHODOLOGY
4.1 Sample & Data Collection
It is well established from the literature that the monetary policy has the significant relation with firm value. In
this study we examine whether variation in monetary policy is associated with the difference in banks value. To
explore the relationship between monetary policy and banks performance, ROA and ROE is used as valuation
Monetary Policy Firm Performance
Firm Size
121
4. Zaman et al., 2014
measure of banks. The sample of 20 banks representing the financial sector in Pakistan is selected on the basis of
availability of data. The annual reports from 2007-2011 is used as data collection for valuation of banks are used. To
measure the monetary policy SBP interest rate ranging between 2007-2011 obtained from the SBP website. Firm
size is used as the control variable in this study.
4.2 Model specification & Variable measurement
To test the association between monetary policy and firm performance, interest rate is used as the measure of
monetary policy. Banking theory recognizes interest rate as the one of the most significant factor in contributing
bank performance. The evidence from bank stock returns support the view that banks are always exposed to interest
rates and ultimately exposed to monetary policy. Yourougou, (1990) finding suggest that there is a significant
negative effect of interest rate on bank returns. Return on asset and return of equity is used as measure of financial
performance of bank. The following Ordinary Least square models are developed for empirical analysis of impact of
monetary policy on banks financial performance.
ROA= β0 + β1 IR + β2F_SIZE +e
ROE= β0 + β1 IR + β2F_SIZE +e
Where
IR= Interest Rate (Log of Interest rate)
ROA = Return on Asset (Net Income to Total Assets)
ROE = Return on Equity (Net profit to Shareholder funds)
F_SIZE = Size of the Firm (Log of Total Asset)
5. EMPIRICAL RESULT AND FINDINGS
5.1 Correlation Analysis
Table 1 shows the correlation analysis between firm performance and independent variable. The correlation
findings reveal negative significant relationship of firm performance with the change in interest rate. The correlation
between ROA that is measure of firm performance and interest rate, which is measure of monetary policy, is (r = -
0.769552) and similarly the correlation between ROE and interest rate is (r = -0.713088) having negative association
between them. The result of the correlation matrix is supported by the study conducted by (Yourougou, 1990).Their
finding suggest that there is a significant negative effect of interest rate on bank value. The correlation of control
variable with dependent variable is (r =0.641896 & r = 0.543698) respectively shows that the firm size has the
significant impact on firm value, greater the size of the firm capture more market value.
Table 1
Pearson Correlation Matrix (N=100)
F_SIZE IR ROA ROE
F_SIZE 1.000000 0.310163 0.641896 0.543698
IR 0.310163 1.000000 -0.769552 -0.713088
ROA 0.641896 -0.769552 1.000000 0.794938
ROE 0.543698 -0.713088 0.794938 1.000000
5.2 Regression Results
Table 2 and Table 3 reports an estimate of econometric equation through regression line by using Ordinary
Least Square (OLS) model. According to confidence interval approach, the probability value (P <.05) value
signifying the relationship between firm rate of return and interest rate but t-statistics (t = -2.294947) suggesting the
inverse relationship between ROA and interest rate. Table 3 shows the regression result of return of equity with log
of interest rate, used as measure of monetary policy. According to confidence interval approach in Table 3 the
probability value (P= 0.0398) and t-statistic (t= -2.084264) shows the significant inverse relationship of log of
interest rate over return of equity. The result depicts the notion that shareholder always perceive interest rate while
investing in the firm. If the rate of interest is higher they will seize their investment and vice versa.
The empirical result conclude the significant negative impact of monetary policy on return of asset and
return of equity a measure of firm performance .The increase in interest rate imposed by the state bank of Pakistan,
will result in decreasing the financial performance of the company. The notion is supports by the research work of
122
5. J. Basic. Appl. Sci. Res., 4(8)119-124, 2014
different authors that increasing interest rate always reduces the investment and borrowing activities that are the core
aspect of bank performance. (Yourougou, 1990)and (Huybens& Smith; Choi, Smith & Boyd,1996)
The value of R-Square listed on both tables,(Table 2 and Table 3) is0.77 and 0.74 for ROA and ROE respectively
reveals that only 23 % and 26 % deviation in interest rate are cause by other factors and these performance variables
are best fit for model. F-test value is very significant in both tables showing that the model is best fitted with the
data. The value of Durbin test is just above 2 showing that there is almost no serial correlation among the variable.
Hence the statistical result supports the hypothesis H1 that monetary policy have negative impact on firm
performance when interest rate is taken as a measure of monetary policy which is also inline with the findings of
previous studies (Maddaloni & Peydro, 2011).
Table 2
Ordinary Least Square (OLS) regression result of ROA on interest rate and control variables (N=100)
Variable Coefficient Std. Error t-Statistic Prob.
C 0.840758 0.069475 12.10162 0.0000
IR -0.048096 0.002133 -2.294947 0.0239
F_SIZE 0.022642 0.006304 3.591552 0.0005
R-squared 0.772552 Mean dependent var 1.089710
Adjusted R-squared 0.767862 S.D. dependent var 0.055976
S.E. of regression 0.052358 Akaike info criterion -3.031877
Sum squared resid 0.265914 Schwarz criterion -2.953722
Log likelihood 154.5938 F-statistic 8.076057
Durbin-Watson stat 2.072368 Prob(F-statistic) 0.000570
Table 3
Ordinary Least Square (OLS) regression result of ROE on interest rate and control variables (N=100)
6. CONCLUSION
The association between monetary policies and firm performance has been examined over the last few years.
However the limited studied focused on banking industry of Pakistan. This study will provide literature on the
monetary aspects of banks performance in the contextual setting of Pakistan. This paper extend and contributes to
impact of monetary policy by taking its dimension of interest rate over the banks return on asset and return on equity
by offering the empirical evidence on its impact on firm performance. The result of this study shows that the interest
rate is negatively associated with bank performance. Our empirical finding are similar to literature as studies by
(Maddaloni & Peydro, 2011) and (Yourougou, 1990).The study also posits some limitation regarding the sample
size as it uses the only 20 banks for the period of five year for empirical analysis. This sample can be extended toi
the other sector of economy for generalization of results and second limitation that it only uses the interest rate as
measure of monetary policy, its other measure can be incorporated for further investigation.
Variable Coefficient Std. Error t-Statistic Prob.
C 0.855988 0.069171 12.37496 0.0000
IR -0.043244 0.000117 -2.084264 0.0398
F_SIZE 0.021160 0.006275 3.372318 0.0011
R-squared 0.754943 Mean dependent var 1.089710
Adjusted R-squared 0.737106 S.D. dependent var 0.055976
S.E. of regression 0.052596 Akaike info criterion -3.022814
Sum squared resid 0.268334 Schwarz criterion -2.944659
Log likelihood 154.1407 F-statistic 7.565641
Durbin-Watson stat 2.080008 Prob(F-statistic) 0.000884
123
6. Zaman et al., 2014
REFERENCES
Adrian, T., Shin, & H.S. (2009). Financial intermediation and monetary economics, 398. Staff Reports: Federal
Reserve Bank of New York
Beltratti, A., & Stultz, R. M. (2009). Why did some banks perform better during the credit crisis? A cross-country
study of the impact of governance and regulation. Working Paper. NBER.
Berger, A., & Bouwman, C. (2010). How does capital affect bank performance during financial crises? . Working
paper, 11-22. Wharton Financial.
Bernanke, S, B., & Mihov, I. (1998). Measuring Monetary Policy. Quarterly Journal of Economics 113(3), 869–902.
Bernanke, B. S., & Blinder, A. (1992). The Federal Fund Rate and the Channels of Monetary Transmission. .
American Economic Review, 901–921.
Borio, C., Zhu, & H. (2008). Capital regulation, risk-taking and monetary policy: A missing link in the transmission
mechanism? . Working Paper, 268. Bank for International Settlements.
Choi, S., Smith, B., Boyd, J., 1996. In#ation, "nancial markets, and capital formation. Federal Reserve Bank of St.
Louis Review 78, 9}35.
Dell’Ariccia, G., Laeven, L., & Marquez, R. (2010). Monetary policy, leverage, and bank risktaking. Working
Paper. International Monetary Fund.
Demirguc-Kunt, A., Detragiache, E., & Merrouche, O. (2010). Bank capital: Lessons from the financial crisis.
Working Paper ,5473. World Bank Policy Research.
Huybens, E., Smith, B., 1999. In#ation, "financial markets, and long-run real activity. Journal of Monetary
Economics 43, 283}315.
Maddaloni, A., & Peydro, J. L. (2011). Bank risk taking, securitization, supervision, and low interest rates: evidence
from lending standards. Review of Financial Studies, 24(6), 2121-2165.
Qayyum, A. (2002). Monetary Condition Index: A Composite Measure of Monetary Policy in Pakistan. . The
Pakistan Development Review, 41(4), 551– 566.
Rajan, & R.G. (2005). Has financial development made the world riskier? Working Paper. National Bureau of
Economic Research.
Sims, C. (2002). Interpreting the Macroeconomic Time Series Facts: The Effects of Monetary Policy. . European
Economic Review, 975–1011.
Taylor, & J.B. (2009). The financial crisis and the policy responses: an empirical analysis of what went wrong, .
Research Working Paper. National Bureau of Economic
Yourougou, P. (1990). Interest-Rate Risk and the Pricing of Depository Financial Intermediary Common Stock
Journal of Banking and Finance, 14, 803-820
124