Relationship between Risk Determinants and Banks' Profitability: Empirical Evidence from Pakistan

Abstract

This paper investigates the response of banks towards their performance in terms of their internal and external risk appetite. The statistics of Government Banks, Commercial banks, Islamic banks, and Islamic-Commercial Banks in Pakistan from 2010-2020 are measured. This study measures the risk-taking of Banks in Pakistan. There are many factors to be considered for the profitability of any business, some are internal factors, and some are external. This paper contributes to the ongoing discussion on the effects of deregulation and liberalization on the performance of the banking sector by examining the relationship between bank performance and efficiency indicators. Meanwhile, the paper makes several attempts to add to the existing literature. I will betaking 4 independent "Inflation, Loan Loss Provision (LLP), Gross Domestic Product (GDP) and Lending rates of interest (LIR)" and 1dependent variable, "Return on Average Equity", for this study. Examining these specific factors in greater depth can aid in comprehending their impact on banking institution profitability.