Domestic and Foreign Banks' Profitability: Differences and Their Determinants

Authors

  • Muhammad AZAM Iqra University, Karachi, Pakistan.
  • Sana SIDDIQUI

Abstract

The purpose of this study to analyze and compare the profitability of domestic (Public & Private) and foreign banks operating in the Pakistan Banking market between 2004 and 2010 on quarterly basis. Total 36 Commercial Banks of Pakistani Industry have represented our sample. To control for the effect of bank ownership on performance, we split the sample into three categories: (1) domestic banks with Government Control, (2) domestic banks with Private control, and (3) foreign banks. This study also finds that foreign banks are more profitable than all domestic banks regardless of their ownership structure by applying regression analysis. This may suggest that it is better for a multinational bank to establish a subsidiary/branch rather than acquiring an “existing player” in the host country. We also found that domestic and foreign banks have different profitability determinants, i.e. factors that are important in shaping domestic banks’ profitability are not necessary important for the foreign banks and vice versa. Empirical results show that foreign banks are less affected by the macroeconomic factors of the host country than domestic banks and they have a higher profitability margin in Pakistan.

Keywords: Domestic and Foreign Banks; Ownership Structure; Banks’ Profitability

JEL Classifications: G2; G3 

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Author Biography

Muhammad AZAM, Iqra University, Karachi, Pakistan.

Dr. Muhammad AZAM Assistant Professor Iqra University, Karachi

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Published

2011-12-02

How to Cite

AZAM, M., & SIDDIQUI, S. (2011). Domestic and Foreign Banks’ Profitability: Differences and Their Determinants. International Journal of Economics and Financial Issues, 2(1), 33–40. Retrieved from https://www.econjournals.com/index.php/ijefi/article/view/83

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