Client Name

JS Bank Limited

Faculty Advisor

Dr. Mohsin Sadaqat

SBS Thought Leadership Areas

Investment Decision Making

SBS Thought Leadership Area Justification

This project aligns with the Investment Decision Making Thought Leadership area across three dimensions.

1. Empirical Asset Pricing and Return Analysis: The core of the project is a quantitative, OLS regression model that estimates how five macroeconomic variables, the SBP policy rate, CPI inflation, M2 growth, real GDP growth, and the PKR/USD exchange rate, drive JS Bank's Return on Equity. With an R² of 0.92, the model produces a calibrated, empirically grounded instrument for understanding how macroeconomic conditions price risk and return in the banking sector. This directly advances the area's stated objective of generating and disseminating knowledge in empirical asset pricing.

2. Investment Decision-Making Under Macroeconomic Uncertainty: Part III of the project builds a forward-looking Scenario Planning Model that projects the bank's ROE, ROA, and Net Interest Income across six defined macroeconomic scenarios, including a probability-weighted expected ROE of 7.42%. This equips management, investors, and the board with a quantitative basis for capital allocation, dividend policy, and risk appetite decisions, precisely the kind of decision-support tool the Investment Decision Making area aims to develop. 3. Academic-Industry Liaison:

The project was executed in direct partnership with JS Bank Limited, bridging scholarly financial methodology, regression modelling, correlation analysis, peer benchmarking, with real-world banking practice. This mirrors IBA-SBS's model of an investment cluster that combines academic rigor with practitioner application and reflects the Finance Lab's objective of fostering industry-academia collaboration in empirical finance.

Aligned SDGs

GOAL 8: Decent Work and Economic Growth

Aligned SDGs Justification

Decent Work and Economic Growth: The project contributes to SDG 8 by strengthening the financial health and sustainability of JS Bank, a commercial bank whose core function is channeling credit to businesses and households across Pakistan. A profitable, well-governed bank is better positioned to extend lending, sustain employment within the financial sector, and support broader economic activity. The report's regression analysis quantifies how macroeconomic instability, particularly the interest rate and inflation cycle, erodes the bank's returns, and its Risk Management Framework and Scenario Planning Model equip the bank to navigate that instability without withdrawing from its economic role. The Cost Efficiency Remediation Protocol specifically aims to close JS Bank's profitability gap with peers, improving the bank's capacity to generate internal capital and continue intermediating credit through adverse economic conditions. Directly stated in the report, the project is grounded in SDG 8's mandate of promoting sustained, inclusive, and stable economic growth through resilient financial institutions.

NDA

No

Abstract

This Experiential Learning Project examines the impact of macroeconomic instability on the profitability of JS Bank Limited between Q1 2021 and Q4 2025. Using quarterly data from official sources, the study analyzes the relationship between key macroeconomic variables, including the State Bank of Pakistan’s policy rate, inflation, money supply growth, real GDP growth, and the PKR/USD exchange rate, and the bank’s Return on Equity (ROE). Multiple regression, correlation analysis, descriptive statistics, and peer benchmarking were employed to assess both external and internal drivers of performance. The findings indicate that macroeconomic conditions play a significant role in shaping profitability, with the regression model explaining approximately 92 percent of the variation in ROE. The policy rate emerged as the strongest positive determinant of profitability, while inflation had the most significant negative effect. Peer comparison revealed that although external economic factors influence all banks, JS Bank’s weaker profitability relative to competitors is primarily linked to internal operational inefficiencies, particularly its high cost-to-income ratio. Based on these findings, the study develops a comprehensive Risk Management Framework and a Scenario Planning Model to support decision-making under varying economic conditions. Scenario analysis suggests that future profitability may remain below historical averages unless meaningful improvements in operational efficiency are achieved. The report concludes that while macroeconomic conditions largely determine the operating environment, sustainable improvements in profitability depend on stronger cost management, effective risk governance, and proactive strategic planning.

Document Type

Restricted Access

Document Name for Citation

Experiential Learning Project

Download

Share

COinS