Analyzing the individual effect of determinants effecting the financial performance of banks using camels model
The aim of this study is to empirically examine the bank specific, financial, and macroeconomic determinants of performance in Islamic and conventional banks of Pakistan. To do this, we first constructed the Financial Performance Index (FPI) based on CAMELS' ratios and then run the computed index on the said determinants. We have used an unbalanced annual panel data covering the period 2010 2015. We also show that the impact of Gross Domestic Product (GDP) Real Interest Rate (RIR) and Political Stability (PS) on performance is insignificant for both types of banks. Bank managers should focus on controlling overheads and operating costs to improve performance because, according the empirical results presented in the study, both of these variables are negatively related to the FPI. Our results suggest that improvements in overall management practices and new standards in operating efficiency and financial risk management are essential to enhance performance of banks.