Examining Monetary Policy Impact on the Financial Performance of Conventional Banks: A Case of Pakistan

Abstract

The current paper investigates the connection among the monetary policy and financial presentation of ten conventional banking covering a time period from 2005 to 2015. For the analysis Stata software was used. For the purpose-oriented results different tests were used. Descriptive and Hausman tests were used for this purpose. Monetary policy indicators, financial performance indicators and macro-economics variables were used for getting purpose-oriented results. There is a noteworthy positive affiliation between ROA and lending rates while an insignificant relation between interest spread and ROA. ROA show an annual increase of 1.03 having low variations which shows consistency with the Macit (2011) finding. On the flip side, there is negative bond between monetary policy indicators and ROE. ROE mean value is 44.09 having no reliability with the past studies. It may be due to banks size. It has been detected that when monetary policy interest rate increases it directly distress the financial ability of the banks. It is because the aggregates lending significantly decreased. When aggregate lending decreases then also level of investment decreases. In response the growth also affected. It is empirically investigated that any change in the monetary policy have strong outcome on the financial performance of conventional banks. Macro-economic variables have negligible effect on the financial performance of the said banks. This paper attempts to provide a real picture and its effect on the economy.

     Keywords: Monetary Policy, ROA, ROE, lending, macro-economics