THE IMPACT OF MICRO AND MACRO ENVIRONMENT ON PROFITABILITY OF COMMERCIAL BANKS IN PAKISTAN

Abstract

Measuring the profitability of an organization is the most important factor. It can be concluded as: it is very difficult to survive for an organization which is not in profitable condition. On the other hand, an organization which is vastly profitable has the capability to provide its shareholders with huge benefits on their investment.

This study majorly investigates the determinants of profitability of Commercial Banks. Though there are numerous determinants of profitability.Micro-environment includes  factors which are assets and capital and macro-environment includes GDP . There are also numerous measures of profitability phenomena based determinant,  Return on Assets (ROA) and Return on Equity (ROE).

This study based on secondary data analysis and includes 26 commercial banks working in Pakistan to conduct this investigation. To perform the analysis the technique of multiple regression has been engaged to examine the influences of independent variables (assets, capital, GDP ) on dependent variable (ROA and ROE). The study findings have exhibited that only assets have an influence on ROE and also statistically significant. All other factors except assets have influence on ROE but this association is statistically non-significant. With respect to ROA the study findings showed that all factors are related to ROA but again this association is not-significant statistically. Theoretical as well as practical implications are also presented. The study findings have implications for both levels: at firm level as well as economic level.

Key Words: Profitability, Assets, Capital, GDP, Return on Assets, Return on Equity