Default Risk Management and Macroeconomic factors are crucial for effective financial performance of commercial banks in Pakistan

Default risk management is one of the most important and crucial risks faced by the commercial banks, particularity in Pakistan. Similarly, macroeconomic factors also affect the financial performance of commercial banks. This study is going to find out the impact of both default risk and macroeconomic factors on the financial performance of commercial banks. This study is quantitative in nature and deductive approach is being used. Data has been taken from the financial statements issued by State banks of Pakistan of 16 commercial banks operating in Pakistan. Dependent variable is return on equity and Independent variables are non-performing loan ratio, loan loss provision ratio, loan to deposit ratio, capital adequacy ratio, while inflation, interest rate and GDP and size have been taken as control variables. All independent and Control variables are showing significant impact except inflation and interest rate. It can be concluded that default risk management, GDP and size do affect the financial performance of commercial banks in Pakistan.