DefinePK

Research Objective

To analyze the impact of political stability on the performance of financial institutions in Pakistan during the period of political stability (2008-2017).

Methodology

The study utilized data from the balance sheet analysis provided by the State Bank of Pakistan. The CAMEL analysis technique was employed to assess the performance of financial institutions. The sample period was from 2008 to 2017, focusing on commercial banks (private and foreign-owned), excluding government-owned and Islamic commercial banks.

Methodology Flowchart

                        graph TD
    A["Data Collection from State Bank of Pakistan"] --> B["CAMEL Analysis"];
    B --> C["Performance Evaluation"];
    C --> D["Analysis of Locally Owned vs. Foreign Owned Banks"];
    D --> E["Conclusion on Impact of Political Stability"];                    

Discussion

The study suggests that political stability in Pakistan leads to better performance of Pakistani-owned private banks compared to foreign-owned banks. This finding contributes to the efficiency theory of financial institutions. The frequent legislative changes and implementation of codes like BASEL II and III during periods of political stability posed challenges for financial institutions, requiring significant costs for implementation.

Key Findings

The performance of locally owned financial institutions (MCB Bank, United Bank Limited, and Allied Bank) increased during the period of political stability. Foreign-owned banks' performance was not as good, and they struggled to meet the minimum requirements set by the State Bank of Pakistan.

Conclusion

Political stability is crucial for the robust performance of financial institutions in Pakistan. The study highlights that Pakistani-owned private banks demonstrated improved performance during the politically stable period of 2008-2017, while foreign-owned banks lagged. The findings imply that a stable political environment fosters a stronger domestic financial sector.

Fact Check

1. Sample Period: The study analyzed financial institutions from 2008 to 2017, a period chosen because, for the first time in Pakistan's history, two pure political governments completed their electoral terms.
2. CAMEL Analysis: The CAMEL analysis technique, used by the IMF in 2020 for underdeveloped and developing countries, was applied to assess the performance of financial institutions.
3. Bank Performance: Locally owned financial institutions like MCB Bank, United Bank Limited, and Allied Bank showed increased performance during the study period, while foreign-owned banks did not perform as well.

Mind Map