Impact of Internal and External Factors on Bank Performance in Pakistan

Khurram Aziz Fani; Vina Javed Khan; Bezon Kumar; Bidur Kumar Pk

doi:doi:10.11648/j.ipa.20180204.11

| Peer-Reviewed

Impact of Internal and External Factors on Bank Performance in Pakistan

Khurram Aziz Fani, Vina Javed Khan, Bezon Kumar, Bidur Kumar Pk

Published in International and Public Affairs (Volume 2, Issue 4)

Received: 26 October 2018 Accepted: 12 November 2018 Published: 10 December 2018

Views: Downloads:

Download PDF

Share This Article

Twitter
Linked In
Facebook

Abstract

The study mainly explores the impact of banks’ internal (CAMEL factors) and external factors (inflation, GDP, and stock market performance) on banks’ performance targeting all PSX listed commercial banks. To achieve the objective, the study uses the sample period from 2012 to 2016 and employs the Feasible Generalized Least Squares (FGLS) panel data model. The study finds that capital adequacy, asset quality, liquidity, and inflation have strong but indirect correlation with banks’ performance while management efficiency, earning quality, GDP, and stock market performance have positive correlation though the significant impact on bank performance. FGLS also exhibits that CAMEL factors along with economic indicators statistically affects the banks’ performance significantly over the studied period. The findings of the study evoke the management of banks to be concerned about CAMEL factors for rallying their performances, as good banking performance may be important for investors and shareholders for investment decisions.

Published in	International and Public Affairs (Volume 2, Issue 4)
DOI	10.11648/j.ipa.20180204.11
Page(s)	66-77
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Internal Factor, External Factor, Bank Performance, Pakistan

References

[1]	Boldrin, M., Juan, C. A., David, K. L. and Carmine, O. (2011). Competition and innovation. Cato Papers on Public Policy 1: 109.
[2]	Laeven, L. Lev, R. and Hui, T. (2016). Bank size, capital, and systemic risk: Some international evidence. Journal of Banking & Finance 69: S25-S34.
[3]	Hejazi, R., Mehrdad, G. and Mohammad, A. (2016). Intellectual, Human and Structural Capital Effects on Firm Performance as Measured by Tobin’s Q. Knowledge and Process Management 23: 259-273.
[4]	Karuhanga, B. N. (2013). Challenges impacting performance management implementation in public universities: A case of Uganda. African Journal of Economic and Management Studies 4: 223-243.
[5]	Ali, Shoukat. (2015). Importance and Implications of CPEC in South Asia: The Indian Factor. Journal of Indian Studies 1: 21-36.
[6]	Ishaq, A. B., Karim, A., Adnan, Z. and Ahmed, S. (2016). Evaluating Performance of Commercial Banks in Pakistan: ‘An Application of Camel Model’. Journal of Business & Financial Affairs 5: 169.
[7]	Athanasoglou, P. P., Sophocles, N. B. and Matthaios, D. D. (2008). Bank-specific, industry-specific and macroeconomic determinants of bank profitability. Journal of international financial Markets, Institutions and Money 18: 121-136.
[8]	Masood, O. and Muhammad, A. (2012). Bank-specific and macroeconomic profitability determinants of Islamic banks: The case of different countries. Qualitative Research in Financial Markets 4: 255-268.
[9]	Bodla, B. S., and Richa, V. (2006). Evaluating performance of banks through CAMEL model: A case study of SBI and ICICI. The IUP Journal of Bank Management 3: 49-63.
[10]	Gupta, R., and Sumeet, K. S. (2008). A camel model analysis of private sector banks in India. Journal of Gyan Management 2: 3-8.
[11]	Ongore, V. O. and Gemechu, B. K. (2013). Determinants of financial performance of commercial banks in Kenya. International Journal of Economics and Financial Issues 3: 237-252.
[12]	Molina, C. A. (2002). Predicting bank failures using a hazard model: the Venezuelan banking crisis. Emerging markets review 3: 31-50.
[13]	Iqbal, K. (2016). The Impact of Corporate Governance on Financial Performance of the Pharmaceutical Industry in Pakistan. Abasyn University Journal of Social Sciences 9: 283-290.
[14]	Dibrell, C., Justin, B. C. and Donald, O. N. (2014). Linking the formal strategic planning process, planning flexibility, and innovativeness to firm performance. Journal of Business Research 67: 2000-2007.
[15]	Tobin, J. (1978). Monetary policies and the economy: the transmission mechanism. Southern economic journal 44: 421-431.
[16]	Chung, K. H. and Stephen, W. P. (1994). A simple approximation of Tobin's q. Financial Management. 70-74.
[17]	Aktas, R., Suleyman, A., Bilge, B. and Gokhan, C. (2015). The Determinants of Banks' Capital Adequacy Ratio: Some Evidence from South Eastern European Countries. Journal of Economics and Behavioral Studies 7: 79-88.
[18]	Ahamed, M. M. (2017). Asset quality, non-interest income, and bank profitability: Evidence from Indian banks. Economic Modelling 63: 1-14.
[19]	Akhtar, S. and Noor, H. A. (2016). Assessing the Effect of Asset Quality, Income Structure and Macroeconomic Factors on Insolvency Risk: An Empirical Study on Islamic Banking System of Pakistan. Pakistan Journal of Social Sciences (PJSS) 36: 63-73.
[20]	Kapan, T. and Camelia, M. (2016). Balance sheet strength and bank lending during the global financial crisis. IMF Working Paper.
[21]	Suresh, C. and Bardastani, M. (2016). Financial Performance Of Selected Conventional And Islamic Banks In Kingdom Of Bahrain–A CAMEL Ranking Based Approach. European Journal of Contemporary Economics and Management 1: 23-59.
[22]	Van, H. and James, C. (1971). A note on biases in capital budgeting introduced by inflation. Journal of Financial and Quantitative Analysis 6: 653-658.
[23]	Saunders, A. and Marcia, M. C. (2014). Financial institutions management: A Risk Management Approach. McGraw-Hill Education.
[24]	Demirgüç, A. and Harry, H. (1999). Determinants of commercial bank interest margins and profitability: some international evidence. The World Bank Economic Review 13: 379-408.
[25]	Kiganda, E. O. (2014). Effect of macroeconomic factors on commercial banks profitability in Kenya: Case of equity bank limited. Journal of Economics and Sustainable Development 5: 46-56.
[26]	Amassoma, D. and Shokanbi, G. R. (2014). The Role of Exchange Rate Volatility on the Nigerian Stock Market Performance. Journal of Business & Economic Studies 20: 31-46.
[27]	Chen, G., Kenneth, A. K., John, R. N. and Oliver, M. R. (2004). Behavior and performance of emerging market investors: Evidence from China. Unpublished Washington State University Working paper (January).
[28]	Tan, Y. and Christos, F. (2012). Stock market volatility and bank performance in China. Studies in Economics and Finance 29: 211-228.
[29]	Agalega, E. and Samuel, A. (2013). The impact of macroeconomic variables on gross domestic product: Empirical evidence from Ghana. International Business Research 6: 108.
[30]	Balsley, H. L. and Vernon, T. C. (1998). Research for Business Decision. Ohio-Publishing Horizon Ltd.
[31]	Morse, J. M. (2000). Determining sample size. Qualitative Health Research 10: 3-5.
[32]	Stewart, D. W. (1984). Secondary Research-Information Sources and Methods. Sage Publications.
[33]	Cowton, C. J. (1998). The use of secondary data in business ethics research. Journal of Business Ethics 17: 423-434.
[34]	Kiecolt, K. J. and Laura, E. N. (1985). Secondary analysis of survey data 53. Sage Publications.
[35]	Hair, J. F., Rolph, E. A., Barry, J. B. and William, C. B. (2010). Multivariate data analysis: A global perspective 7. Upper Saddle River, NJ: Pearson.
[36]	Breusch, T. S. and Adrian, R. P. (1979). A simple test for heteroscedasticity and random coefficient variation. Econometrica: Journal of the Econometric Society. 1287-1294.
[37]	Cook, R. D. and Sanford, W. (1983). Diagnostics for heteroscedasticity in regression. Biometrika 70: 1-10.
[38]	Wooldridge, J. M. (2010). Econometric analysis of cross section and panel data. MIT press.
[39]	Pearson, M. H. (2004). General Diagnostic Tests for Cross Section Dependence in Panels. CESifo Working Paper Series No. 1229; IZA Discussion Paper No. 1240.
[40]	Gujarati, D. N. (2009). Basic econometrics. Tata McGraw-Hill Education.
[41]	Burdisso, T. and Maximo, S. (2016). Panel time series: Review of the methodological evolution. Stata Journal 16: 424-442.
[42]	Hoechle, D. (2007). Robust standard errors for panel regressions with cross-sectional dependence. Stata Journal 7: 281.
[43]	Taylor, W. E. (1977). Small sample properties of a class of two stage Aitken estimators. Econometrica: Journal of the Econometric Society 45: 497-508.
[44]	Rao, P., and Zvi. G. (1969). Small-sample properties of several two-stage regression methods in the context of auto-correlated errors. Journal of the American Statistical Association 64: 253-272.
[45]	Barnor, C., and Theodora, A. O. (2012). Capital adequacy and the performance of Ghanaian banks. Journal of Business Research 6: 105-117.
[46]	Frederick, N. K. (2015). Factors Affecting Performance of Commercial Banks in Uganda-A Case for Domestic Commercial Banks. International Review of Business Research Papers 11: 95-113.
[47]	Guisse, M. L. (2012). Financial performance of the Malaysian banking industry: Domestic vs foreign banks. PhD diss., Eastern Mediterranean University (EMU).
[48]	Ikpefan, O. A. (2013). Capital adequacy, management and performance in the Nigerian commercial bank (1986-2006). African Journal of Business Management 7: 2938-2950.
[49]	Olweny, T., and Themba, M. S. (2011). Effects of banking sectorial factors on the profitability of commercial banks in Kenya. Economics and Finance Review 1: 1-30.
[50]	Anjili, A. D. (2014). Effects of asset and liability management on the financial performance of commercial banks in Kenya. PhD diss., University of Nairobi.
[51]	Heikal, M., Muammar, K., and Ainatul, U. (2014). Influence analysis of return on assets (ROA), return on equity (ROE), net profit margin (NPM), debt to equity ratio (DER), and current ratio (CR), against corporate profit growth in automotive In Indonesia stock exchange. International Journal of Academic Research in Business and Social Sciences 4: 101.
[52]	Azizi, M., and Sarkani, D. Y. A. (2014). Review Financial Performance of Mellat Bank According To Camel Model. A Journal of Multidisciplinary Research 3: 32-42.
[53]	Taani, K., and Banykhaled, M. H. H. (2011). The effect of financial ratios, firm size and cash flows from operating activities on earnings per share: (an applied study: on Jordanian industrial sector). International journal of social sciences and humanity studies 3: 1309-8063.
[54]	Agbada, A. O., and Osuji, C. C. (2013). The efficacy of liquidity management and banking performance in Nigeria. International review of management and business research 2: 223-233.
[55]	Olagunju, A., Adeyanju, O. D. and Olabode, O. S. (2011). Liquidity Management and Commercial Banks’ Profitability in Nigeria. Research Journal of Finance and Accounting 2: 2222-2847.
[56]	Flamini, V., Liliana, S, and Calvin, A. M. (2009). The determinants of commercial bank profitability in Sub-Saharan Africa. No. 9-15. International Monetary Fund.

Cite This Article

Plain Text BibTeX RIS

APA Style

Khurram Aziz Fani, Vina Javed Khan, Bezon Kumar, Bidur Kumar Pk. (2018). Impact of Internal and External Factors on Bank Performance in Pakistan. International and Public Affairs, 2(4), 66-77. https://doi.org/10.11648/j.ipa.20180204.11

Copy | Download

ACS Style

Khurram Aziz Fani; Vina Javed Khan; Bezon Kumar; Bidur Kumar Pk. Impact of Internal and External Factors on Bank Performance in Pakistan. Int. Public Aff. 2018, 2(4), 66-77. doi: 10.11648/j.ipa.20180204.11

Copy | Download

AMA Style

Khurram Aziz Fani, Vina Javed Khan, Bezon Kumar, Bidur Kumar Pk. Impact of Internal and External Factors on Bank Performance in Pakistan. Int Public Aff. 2018;2(4):66-77. doi: 10.11648/j.ipa.20180204.11

Copy | Download

@article{10.11648/j.ipa.20180204.11,
  author = {Khurram Aziz Fani and Vina Javed Khan and Bezon Kumar and Bidur Kumar Pk},
  title = {Impact of Internal and External Factors on Bank Performance in Pakistan},
  journal = {International and Public Affairs},
  volume = {2},
  number = {4},
  pages = {66-77},
  doi = {10.11648/j.ipa.20180204.11},
  url = {https://doi.org/10.11648/j.ipa.20180204.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ipa.20180204.11},
  abstract = {The study mainly explores the impact of banks’ internal (CAMEL factors) and external factors (inflation, GDP, and stock market performance) on banks’ performance targeting all PSX listed commercial banks. To achieve the objective, the study uses the sample period from 2012 to 2016 and employs the Feasible Generalized Least Squares (FGLS) panel data model. The study finds that capital adequacy, asset quality, liquidity, and inflation have strong but indirect correlation with banks’ performance while management efficiency, earning quality, GDP, and stock market performance have positive correlation though the significant impact on bank performance. FGLS also exhibits that CAMEL factors along with economic indicators statistically affects the banks’ performance significantly over the studied period. The findings of the study evoke the management of banks to be concerned about CAMEL factors for rallying their performances, as good banking performance may be important for investors and shareholders for investment decisions.},
 year = {2018}
}

Copy | Download

TY  - JOUR
T1  - Impact of Internal and External Factors on Bank Performance in Pakistan
AU  - Khurram Aziz Fani
AU  - Vina Javed Khan
AU  - Bezon Kumar
AU  - Bidur Kumar Pk
Y1  - 2018/12/10
PY  - 2018
N1  - https://doi.org/10.11648/j.ipa.20180204.11
DO  - 10.11648/j.ipa.20180204.11
T2  - International and Public Affairs
JF  - International and Public Affairs
JO  - International and Public Affairs
SP  - 66
EP  - 77
PB  - Science Publishing Group
SN  - 2640-4192
UR  - https://doi.org/10.11648/j.ipa.20180204.11
AB  - The study mainly explores the impact of banks’ internal (CAMEL factors) and external factors (inflation, GDP, and stock market performance) on banks’ performance targeting all PSX listed commercial banks. To achieve the objective, the study uses the sample period from 2012 to 2016 and employs the Feasible Generalized Least Squares (FGLS) panel data model. The study finds that capital adequacy, asset quality, liquidity, and inflation have strong but indirect correlation with banks’ performance while management efficiency, earning quality, GDP, and stock market performance have positive correlation though the significant impact on bank performance. FGLS also exhibits that CAMEL factors along with economic indicators statistically affects the banks’ performance significantly over the studied period. The findings of the study evoke the management of banks to be concerned about CAMEL factors for rallying their performances, as good banking performance may be important for investors and shareholders for investment decisions.
VL  - 2
IS  - 4
ER  -

Copy | Download

Author Information

Khurram Aziz Fani

Department of Commerce, University of the Punjab, Gujranwala, Pakistan
Vina Javed Khan

Department of Commerce, University of the Punjab, Gujranwala, Pakistan
Bezon Kumar

Department of Economics, Varendra University, Rajshahi, Bangladesh
Bidur Kumar Pk

Bangladesh Bank, Rajshahi, Bangladesh

Download PDF

Sections

Plain Text BibTeX RIS

APA Style

Khurram Aziz Fani, Vina Javed Khan, Bezon Kumar, Bidur Kumar Pk. (2018). Impact of Internal and External Factors on Bank Performance in Pakistan. International and Public Affairs, 2(4), 66-77. https://doi.org/10.11648/j.ipa.20180204.11

Copy | Download

ACS Style

Khurram Aziz Fani; Vina Javed Khan; Bezon Kumar; Bidur Kumar Pk. Impact of Internal and External Factors on Bank Performance in Pakistan. Int. Public Aff. 2018, 2(4), 66-77. doi: 10.11648/j.ipa.20180204.11

Copy | Download

AMA Style

Khurram Aziz Fani, Vina Javed Khan, Bezon Kumar, Bidur Kumar Pk. Impact of Internal and External Factors on Bank Performance in Pakistan. Int Public Aff. 2018;2(4):66-77. doi: 10.11648/j.ipa.20180204.11

Copy | Download

@article{10.11648/j.ipa.20180204.11,
  author = {Khurram Aziz Fani and Vina Javed Khan and Bezon Kumar and Bidur Kumar Pk},
  title = {Impact of Internal and External Factors on Bank Performance in Pakistan},
  journal = {International and Public Affairs},
  volume = {2},
  number = {4},
  pages = {66-77},
  doi = {10.11648/j.ipa.20180204.11},
  url = {https://doi.org/10.11648/j.ipa.20180204.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ipa.20180204.11},
  abstract = {The study mainly explores the impact of banks’ internal (CAMEL factors) and external factors (inflation, GDP, and stock market performance) on banks’ performance targeting all PSX listed commercial banks. To achieve the objective, the study uses the sample period from 2012 to 2016 and employs the Feasible Generalized Least Squares (FGLS) panel data model. The study finds that capital adequacy, asset quality, liquidity, and inflation have strong but indirect correlation with banks’ performance while management efficiency, earning quality, GDP, and stock market performance have positive correlation though the significant impact on bank performance. FGLS also exhibits that CAMEL factors along with economic indicators statistically affects the banks’ performance significantly over the studied period. The findings of the study evoke the management of banks to be concerned about CAMEL factors for rallying their performances, as good banking performance may be important for investors and shareholders for investment decisions.},
 year = {2018}
}

Copy | Download

TY  - JOUR
T1  - Impact of Internal and External Factors on Bank Performance in Pakistan
AU  - Khurram Aziz Fani
AU  - Vina Javed Khan
AU  - Bezon Kumar
AU  - Bidur Kumar Pk
Y1  - 2018/12/10
PY  - 2018
N1  - https://doi.org/10.11648/j.ipa.20180204.11
DO  - 10.11648/j.ipa.20180204.11
T2  - International and Public Affairs
JF  - International and Public Affairs
JO  - International and Public Affairs
SP  - 66
EP  - 77
PB  - Science Publishing Group
SN  - 2640-4192
UR  - https://doi.org/10.11648/j.ipa.20180204.11
AB  - The study mainly explores the impact of banks’ internal (CAMEL factors) and external factors (inflation, GDP, and stock market performance) on banks’ performance targeting all PSX listed commercial banks. To achieve the objective, the study uses the sample period from 2012 to 2016 and employs the Feasible Generalized Least Squares (FGLS) panel data model. The study finds that capital adequacy, asset quality, liquidity, and inflation have strong but indirect correlation with banks’ performance while management efficiency, earning quality, GDP, and stock market performance have positive correlation though the significant impact on bank performance. FGLS also exhibits that CAMEL factors along with economic indicators statistically affects the banks’ performance significantly over the studied period. The findings of the study evoke the management of banks to be concerned about CAMEL factors for rallying their performances, as good banking performance may be important for investors and shareholders for investment decisions.
VL  - 2
IS  - 4
ER  -

Copy | Download