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Does the Loan Loss Provision Affect the Banking Profitability in Case of Pakistan?

Author

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  • Ahmed Raza ul Mustafa
  • Riaz Hussain Ansari
  • Muhammad Umair Younis

Abstract

This paper examines the impact of loan loss provisions of the banks on the performance of the banks operating in Pakistan. Moreover the other factors that affect the banking profitability have been discussed in this study. Our results show that the loan loss provision of the banks is of paramount importance in affecting its profitability. A well-managed bank is perceived to be of lower loan loss provision and such an advantage will be translated into higher profitability. In addition, banks advances and deposits which represent the vital role for the determination of banking profitability. Finally, with regard to non financial variable, political instability in the previous period has more significant effect on the present banks profitability rather than the political instability at present period.

Suggested Citation

  • Ahmed Raza ul Mustafa & Riaz Hussain Ansari & Muhammad Umair Younis, 2012. "Does the Loan Loss Provision Affect the Banking Profitability in Case of Pakistan?," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(7), pages 772-783.
    • Handle: RePEc:asi:aeafrj:v:2:y:2012:i:7:p:772-783:id:930
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    Citations

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    Cited by:

    1. Meriem Sebai & Omar Talbi, 2024. "A dynamic panel threshold regression on financial inclusion-financial stability nexus: Evidence from developing countries," Economics Bulletin, AccessEcon, vol. 44(3), pages 813-831.
    2. Shawuya Jigeer & Ekaterina Koroleva, 2023. "The Determinants of Profitability in the City Commercial Banks: Case of China," Risks, MDPI, vol. 11(3), pages 1-21, March.
    3. Nguyen, V.C. & Nguyen, Thu Thuy & Nguyen, Huu Tinh, 2020. "Government Ability, Bank-Specific Factors and Profitability - An insight from banking sector of Vietnam," OSF Preprints 9dcqp, Center for Open Science.
    4. Zuriawati Zakaria & Noorfaiz Purhanudin & Ahmad Nazri Wahidudin, 2018. "The Role of Board Governance On Bank Performance," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 7(4), pages 38-50, October.
    5. Ekaterina Koroleva & Shawuya Jigeer & Anqi Miao & Angi Skhvediani, 2021. "Determinants Affecting Profitability of State-Owned Commercial Banks: Case Study of China," Risks, MDPI, vol. 9(8), pages 1-19, August.
    6. Mohammad Alhadab & Saba Alsahawneh, 2016. "Loan Loss Provision and the Profitability of Commercial Banks: Evidence from Jordan," International Journal of Business and Management, Canadian Center of Science and Education, vol. 11(12), pages 242-242, November.
    7. Campmas, Alexandra, 2020. "How do European banks portray the effect of policy interest rates and prudential behavior on profitability?," Research in International Business and Finance, Elsevier, vol. 51(C).

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