Master of Business Administration Executive
Faculty / School
Faculty of Business Administration (FBA)
Year of Award
MBA Executive Research Project
This study aims to determine the effect of market interest rate on the profitability of commercial banks within the context of Pakistan by comparing the impact of market interest rate on large scale and small scale Pakistani commercial banks.
Eight commercial banks have been selected out of which four are small scale commercial banks (JS Bank. Silk Bank, Meezan Bank, and Samba Bank) and four are large scale commercial banks (UBL, HBL, NBP, and ABL).
It is expected that the findings of this study benefit policy makers and commercial bank managers in making critical macroeconomic and managerial decisions. To achieve this purpose both primary and secondary research was conducted. Primary research was completed using surveys conducted from 50 employees working in treasury and finance departments of various financial institutions in Pakistan, while secondary research was conducted using historical performance and economic data. The commercial banks profit is measured by ROA and ROl.
The research findings indicate that overall market interest rate does not have any impact on the profitability of commercial banks. However, it is found that there is a significant difference between the influence of market interest rate on profits of small scale and large scale commercial banks.
In conclusion, the Pakistani commercial banking sector as a whole is not affected by changes in market interest rate; however, some commercial banks might be exposed to interest rate risk. In addition, regulators’and banks should overlook the commercial bank’s exposure to interest rate risks. They should monitor changes in market interest rate and develop strategies to mitigate any risks associated with it.
It is recommended that the individual banks, the banking industry and the State Bank of Pakistan make efforts in minimizing interest rate risks. This can be achieved by product diversification and investment in efficient and cost-saving forms of technology. Furthermore, commercial banks should reduce interest rate risk through greater attention towards generation of non-interest income.
Zia, K. (2015). Relationship between commercial bank profitability and market interest rates in Pakistan (Unpublished graduate research project). Institute of Business Administration, Pakistan. Retrieved from https://ir.iba.edu.pk/research-projects-emba/165
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