Nexus Between Bank’s Profitability, Internal and Economic Indicators

Abstract

Many factors affect the bank’s profitability. Internal factors include total asset (TA), and market share loan (MSL) are an important one to consider while external factors include gross domestic product (GDP), corporate income tax (CIT), corruption perception index (CPI), and political instability (PI) are critical. We measured the bank’s profitability through profit before tax on asset (PBTA) and return on asset (ROA) and finds its connection with banks’ internal and external factors. Our empirical estimates based upon 15 commercial banks’ data listed on Pakistan stock exchange (PSE) from 2007-16 show that total asset (TA) and corruption perception index (CPI) is the important one to determine the bank’s profitability. These results have been further justified under the fixed effect regression model which was found appropriate under the Hausman specification test. It is concluded that total assets (TA) and corruption perception index (CPI) does affect the bank’s profitability internally as well as externally.