Political Stability and Performance of Financial Institutions in Pakistan

Abstract

The purpose of the present study is to analyze the impact of political stability on the performance of financial Institutions in Pakistan. This is the first study in the context of Pakistan that analyzes the performance of financial institutions during the period of political stability. The study's sample period was from 2008 to 2017 because, for the first time in Pakistan, two pure political governments completed their electoral term since the country's independence in 1947. The data is collected from the balance sheet analysis provided by the State Bank of Pakistan on its official website. For the data analysis, the study used the CAMEL analysis technique. The CAMEL analysis technique was also used by the IMF in 2020 to analyze the performance of underdeveloped and developing countries of the world. The results show that the performance of locally owned financial institutions (MCB Bank, United Bank Limited, and Allied Bank) in Pakistan increased during this period. Still, foreign-owned bank's performance is not good even if they cannot fulfill the minimum requirement established by the State Bank of Pakistan. The results contribute to the efficiency theory of financial institutions. Further, the study suggests that the researchers can test the significance of the results by changing sectors to confirm, modify, accept, or reject the results.