Banks Soundness in Pakistan: SEM-PLS Approach

Abstract

The research is conducted to test the soundness of 20 listed Pakistani banks post-crisis (2009-2018). The banks included Islamic, private, and publicly-owned banks. PLS-SEM technique was applied on CAMELS with 42 indicators, and the most significant parameter for Banks' soundness was identified. Stock Returns were taken as the dependent variable and direct indicator for Bank's soundness. Outcomes showed that Earning parameter contributed most significantly to Banks' soundness in Pakistan. Other parameters like management, capital, and liquidity were also significant, but results showed that banks are executing with a lower capital base and less liquidity, and management also needs improvement. The sensitivity parameter showed no relevance to banks' soundness in Pakistan. Overall, the Pakistani banking industry is sound, and worldwide banking crises affect Pakistani banks considerably.