Contemporary Dynamics Affecting Bank Performance: An Analytical Study From Pakistan

Abstract

The research examines the influence of contemporary dynamic factors on bank profitability by using
unbalanced panel data of 15 Pakistani banks including both the private and public sector banks over the
last decade. The study used unbalanced panel data analysis to investigate the impact of several dynamic
factors including bank size, capital, loans, deposits, governance, foreign investments, bank orientation,
Gross Domestic Product, inflation rate, market capitalization, interbank rate, budget deficit, government
regime, online banking and 3G & 4G technology on major profitability indicators i.e., return on assets,
return on equity, return on capital employed, net interest margin and operating profit margin. The Random
Effect Model indicates that Bank Size, GDP and Capitalization in the Market have a significant and a
affirmative impact on the assets based return. Online banking is found having a significant progressive
impact on Capital employed return. The variables of Capital, Loans Advanced, Deposits submitted, GDP
and online banking have a significant positive impact on Operational Margin, but loan advances, corporate
governance at the banks and foreign initiated investment have a positive impact on operational profitability.
The results indicate the presence of significant influence of multiple contemporary dynamic factors on bank
profitability in the selected data set. Thus, bank managers need to address these variables of significant
importance to remain competitive in the dynamic banking environment of Pakistan.