Impact of Market Competition on Profitability and Efficiency of Pakistani Banks: Does Credit Risk Mediates the Relationship?
Abstract
This research has investigated the impact of market competition on efficiency and profitability in banking sector of Pakistan with mediating role of credit risk. Panel data of 19 conventional banks operating in Pakistan has been used for the time period of 2006-2016. By using Panel data techniques this study has found that market competition has significant impact on profitability and efficiency of Pakistani banks. Credit risk is positively and significantly related with market competition. Moreover, the impact of credit risk on banks profitability and efficiency is significant and negative. The empirical findings show that credit risk mediates the relationship between market competition and ROA as well as market competition and cost efficiency. The results of this study may help to suggest modifications in current banking principles to boost market competition, to certify financial stability and to increase banks efficiency and profitability.
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