Zia ur Rehman, Sher Ali Khan, Asad Khan, Asim Rahman


A developed banking sector provides the impetus for the economy to grow. However, in order to maintain financial stability and sustain negative shocks, it is important to understand the factors that influence the profitability of banks. The aim of the study was to analyse the effect of internal and external factors on the profitability of banks in Pakistan for the period 2007-2015. Fixed effects model was used to analyse the effect of internal and external factors on the profitability of banks in Pakistan. The findings of the study revealed that among internal factors only bank size and asset composition significantly influences the profitability of banks whereas in the external determinants only real interest rates and GDP growth rates has a significant effect on the profitability of banks.


Bank profitability, Internal factors, external factors, panel data

Full Text:




Abreu, M. & Mendes, V. (2000). Commercial Bank Interest Margins and Profitability: Evidence for Some EU Countries, presented on the 50th International Atlantic Economic Conference. (

Akbas, H.E., (2012). Determinants of Bank Profitability: An Investigation on Turkish Banking Sector. In: Öneri Dergisi 10 (37), 103–110.

Albertazzi, U., & Gambacorta L. (2006). Bank Profitability and the Business Cycle. Bank of Italy Economic Research Paper No. 601 Alshatti, A.S. (2016). Determinants of banks’ profitability − the case of Jordan. Investment Management and Financial Innovations, 13(1), 84-91.

Angbazo, L. (1997). Commercial Bank Interest Margins, Default Risk, Interest-rate Risk, and Off-balance Sheet Banking. Journal of Banking and Finance, 21, 55-87.

Athanasoglou, P.P., Delis, M.D., & Staikouras, C.K., (2006). Determinants of Bank Profitability in the South Eastern European Region, Bank of Greece, Working Paper No. 47.

Baltagi, B.H. (1995). Econometric analysis of panel data (Chichester: Wiley).

Bashir, A. M. & Hassan, M.K. (2003). Determinants of Islamic Banking Profitability, presented on the ERF 10th Annual Conference. (

Berger, A. (1995). The Relationship between Capital and Earnings in Banking. Journal of Money, Credit and Banking, 27(2), 432-456.

Bolt, W., de Haan, L., Hoeberichts, M., van Oordt, M., & Swank, J., (2012). Bank Profitability during Recessions. Journal of Banking & Finance, 36, 2552-2564.

Bourke, P. (1989). Concentration and Other Determinants of Bank Profitability in Europe, North America and Australia. Journal of Banking and Finance, 13,65-79.

Boyd, J. & Runkle, D. (1993). Size and Performance of Banking Firms: Testing the Predictions of Theory. Journal of Monetary Economics, 31, 47-67.

Cheang, N. (2005). How Do Interest Rate Movements Affect Interest Margin of Macao Banks?, AMCM Quarterly Bulletin, Issue 15, 51-74.

Chirwa, E.W. (2003). Determinants of commercial bank’s profitability in Malawi: a cointegration approach. Applied Financial Economics, 13(8), 565-571.

Demirguc-Kunt, A. & Huizinga,H. (1999). Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence. World Bank Economic Review, 13, 379-408.

Dietrich, A., & Wanzenried, G. (2011). Determinants of bank profitability before and during the crisis: Evidence from Switzerland. Journal of International Financial Markets, Institutions and Money, 21(3), 307-327.

Flamini, V., McDonald, C. & Schumacher, L. (2009). The Determinants of Commercial Bank Profitability in Sub-Saharan Africa, International Monetary Fund WP/09/15 January 2009.

Garcia, M.T.M., & Guerreiro, J.P.S.M. (2016). Internal and external determinants of banks’ profitability: The Portuguese case. Journal of Economic Studies, 43(1), 90-107.

Goddard, J., Molyneux, P., & Wilson, J. (2004). Dynamics of Growth and Profitability in Banking. Journal of Money, Credit and Banking, 36, 1069 – 1090.

Gujarati, D.N. (2004). Basic Econometrics, 4th edition, McGraw-Hill Book Co.

Guru B., Staunton, J., & Balashanmugam, B. (2002).Determinants of Commercial Bank Profitability in Malaysia. University Multimedia Working Papers.

Hsiao, C. (1986). Analysis of Panel Data, Econometric Society monographs No. 11, New York: Cambridge University Press.

Jiang, G., Tang, N., Law, E., & Sze, A. (2003). Determinants of Bank Profitability in Hong Kong. Hong Kong Monetary Authority Research Memorandum, September.

Kosmidou, K. (2008). The Determinants of Banks’ Profits in Greece during the Period of EU Financial Integration, Managerial Finance 34, 146-159

Menicucci, E., & Paolucci, G. (2016). The determinants of bank profitability: empirical evidence from European banking sector. Journal of Financial Reporting and Accounting, 14(1), 86-115.

Molyneux, P. &Thornton, J. (1992). Determinants of European Bank Profitability: A Note. Journal of Banking and Finance, 16(6), 1173-8.

Naceur, S. B. (2003). The Determinants of the Tunisian Banking Industry Profitability: Panel Evidence. Universite Libre de Tunis Working Papers.

Nessibi, O. (2016). The Determinants of Bank Profitability: The Case of Tunisia. Journal of Finance and Banking Studies, 5(1), 39-50. Petria, N., Capraru, B., & Ihnatov, I. (2015). Determinants of banks’ profitability: evidence from EU 27 banking Systems. Procedia Economics and Finance, 20, 518-524

Sinkey, J. Jr. (1992). Commercial Bank Financial Management in the Financial Services Industry. N.Y.: Macmillan Publishing Company.

Staikouras, C. & Wood, G. (2003). The Determinants of Bank Profitability in Europe, Paper presented at the European Applied Business Research Conference.

Sufian, F., & Chong., R. R. (2008). Determinants of Banks Profitability in a Developing Economy: Empirical Evidence from the Philippines. Asian Academy of Management Journal of Accounting and Finance, 4(2), 91-112.

Vong, L.K. (2005). Loans and Profitability of Banks in Macao. AMCM Quarterly Bulletin, 15, April, 91-107.

Wong, Y. F., & Cheung, O.L. (1997). A Comparative Study of the Lending and Performance of Banks in Macau: Portuguese, Foreign, PRC and Local Banks. Proceedings of the third South China International Business Symposium, University of Macau, 221-40.



  • There are currently no refbacks.

Creative Commons License
Sarhad Journal of Management Sciences by Sarhad University of Science & Information Technology is licensed under a Creative Commons Attribution 4.0 International License.
Based on a work at