Impact of Imports & Exports on The Profitability of Pakistani Banks

This paper aims at examining the level of influence the macroeconomic variables (Exports & Imports) have on the profitability of commercial banks in Pakistan. The study covers the period 2005 to 2009 on quarterly basis. The period from 2005 to 2009 was chosen because during the given period, the global financial sector has shown a trend of significant decrease in profitability due to the global economic downturn (crisis) with many reputable banks liquidation deposit and this also negatively affected the banking sector in Pakistan including both private and public. In the study least square regression technique is applied to the data for analysis, in the line with Indranarain et al. (2009). The study used the Return on Assets (ROA) as a measure of profitability. Two variables, including exports and imports are used as explanatory variables. Both exports and imports are key factors in any country’s economy around the world. The activity of imports and exports always brings employment, economic growth, and prosperity to the countries. All analyzes of this study are performed using the statistical software "Eviews-7". To test the autocorrelation in the collected data, Durbin-Watson statistic is used. Multicollinearity of the data is diagnosed by making the correlation matrix. Stationarity of the data is checked by using the “individual unit root test”. The results obtained from the regression models show that both imports and exports are significantly affecting the bank’s profitability. The better regression model is consisting of the macro-economic variable exports.