Interest Rate and Its Effect on Bank's Profitability

Abstract

The study conducted to check and examine the market interest rate effect on the bank’s profitability in public and private sectors of Pakistan. For the better understanding of effects, the sample was divided into two categories. 1) Public sector banks: Comprises of four nationalized banks and 2) Private sector banks: contains six private sector banks for the study. The Islamic banks were not included in the sample. Bank lending rates were taken as a proxy for interest rate while Return on Assets (ROA) and Return on equity (ROE) were taken as a profitability of the banks. The regression model was used in the study to witness the effects of interest rate on profitability. The results show that the interest rate has more effects on both ROA and ROE in private banks as compared to the public sector banks.