Understanding the Effects of Volatility in Macroeconomic Indicators on Financial Stability: New Insights from the Banking Sector of Pakistan

Authors

  • Jamshid ur Rehman Assistant Director, Directorate of Quality Assurance, Khushal Khan Khattak University, Karak
  • Ishfaq Ahmed Lecturer in Management Science, Khushal Khan Khattak University, Karak
  • Khalid Hussain Assistant Professor, Department of Business Studies, Bahria University, Islamabad, Pakistan
  • Abdul Latif Lecturer in Management Science, Khushal Khan Khattak University, Karak

Abstract

This study examines how Pakistani commercial banks' financial stability is affected by changes in macroeconomic factors. The dynamic panel data set from 2013 to 2022 is used in the study. We employ the two-step system generalized method of moment (GMM) to observe the impact of the volatility of the macroeconomic variables. The estimation results demonstrate that the financial stability of commercial banks is adversely impacted by the volatility of macroeconomic conditions. Furthermore, the findings indicate that banks' financial stability declines with their asset size. Additionally, bank capital, deposits, and asset quality all contribute positively to the stability of the banks. The study's conclusion recommended that regulators and bank management comprehend the volatility of macroeconomic variables and develop plans to reduce their adverse effects.

Keywords: Exchange rate, Interest rate, Inflation rate, Bank-specific factors, Commercial banks

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Published

2024-10-24

Issue

Vol. 3 No. 3 (2024): Journal of Business and Management Research (JBMR)

Section

Articles

How to Cite

Understanding the Effects of Volatility in Macroeconomic Indicators on Financial Stability: New Insights from the Banking Sector of Pakistan. (2024). Journal of Business and Management Research, 3(3), 280-295. https://jbmr.com.pk/index.php/Journal/article/view/264