Abstract:
The purpose of this study is to investigate the role of both internal and external factors in achieving better stability in context of Pakistani banking industry. The internal determinants that this research study have used are bank size, funding risk, liquidity risk, credit risk and return on assets while external variables utilized includes money supply and unemployment rate. The study contains 10 years secondary data over the period 2013-2022 of 24 commercial banks of Pakistan. This study conducted correlation analysis and GMM model estimation for analysis. The findings show that liquidity risk, bank profitability, funding risk and bank size have positive and significant impact on bank stability. On the other hand, credit risk effects negatively bank stability. The result showed that money supply positively affects the stability of banks in Pakistan. On the contrary, unemployment is negatively affecting banks stability. The findings of this study have important implications for policymakers, regulators, banks, investors, and other stakeholders in the Pakistani banking sector. This research enables regulators and policy makers to draft policy and regulatory framework that can ensure bank stability. Moreover, banks can use the results of this study to improve their risk management strategies. Likewise, investors in the financial markets can use the research's results to evaluate the stability of banks. Future researches can enhance this work by adding number of other determinants of bank stability like financial innovation, corporate governance, regulatory framework, etc. Furthermore, a comparison of developed and developing countries can be made to understand the difference in the determinants of bank stability in developed and developing countries.