Global Financial Crisis and its Implications on the Performance of Financial Sector of Pakistan

Abstract

The banking sector plays a vital role in the financial system of economy and its
development in any country. That’s why performance of banking sector is a
primary concerned for researcher and academician. The present study analyses
the performance of financial sector of Pakistan to judge the impact of the global
financial crises on banking sector of Pakistan. For this purpose, the current study
picked up convenient sampling technique, a sample of twenty listed banks at
Pakistan Stock Exchange and use their annual reports from 2006-2017. Return
on asset is used as a proxy variable of performance and advances, asset quality,
size, deposits, investment, liquidity, solvency and crises dummy as independent
variables. The fixed effect model is applied to investigate the impact of these
independent variables on return on assets (ROA). The results show that not only
the model is good fit, however, sufficiently explains the underline phenomenon.
Crises dummy is significant, shows that there is impact of global financial crises.
Advances, Investment, solvency, and size have positive effect on the
performance of banking sector of Pakistan, whereas asset quality, deposits and
liquidity have negative relationship with profitability of bank. The asset quality
and liquidity did not ensure profitability of commercial banks in recent crises as
indicated by results. During the global financial crises banking industry failed to
utilize their deposits efficiently. The policy makers revisit to safeguard the
banking industry and focused on solvency and size of the bank, which plays an
important role to safeguard the banking sector from such disaster. This study
contributes in academic literature to grasp important determinants of the global
financial crises of 2007-2008 in Pakistan. Future researcher may divide crises
periods into phases to get further insights to the impact of global financial crises
in banking sector.