Determinants and Forecasting of Islamic and conventional Banks Profitability in Pakistan by using Logistic Regression

Banks’ profitability has been an essential consideration for economists, investors, and researchers. It serves as a benchmark for the banking industry economy. In the previous literature, it was observed that an internal factor of Pakistan banks’ profitability i.e. non-interest income was not included. This study examined in addition to other micro and macro factors, the non-interest income of banks’ profitability in Pakistan. Data for the period 2007 to 2016 was obtained from State bank Pakistan and the Finance Division of Pakistan. Bank’s profitability was measured by the return on assets taken as the dependent variable. An unusual technique for such studies, logistic regression was applied. Although, by default return on asset is a continuous variable it was converted to categorical by assigning “1” for profitable banks and “0” for the non-profitable bank. Results indicated that bank size, operating efficiency, and interest ratio have significant effects on the profitability of banks. Interest ratio and operating efficiency have a negative relationship with return on asset and the size has a positive effect on return on asset. It was found that non-interest income has no significant effect on banks’ profitability.