Impact of Internal and External Factors on Bank Performance in Pakistan

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.