Abstract
This paper examines the effects of inflation, the real interest rate, and their uncertainty on deposits and advances of conventional and Islamic banks of Pakistan. To carry out the empirical analysis, annual data covering the period 2008-2015 for a sample of 25 banks are used. We find that the capital adequacy ratio, bank size, inflation rate, inflation rate uncertainty, and real interest rate uncertainty have significant impacts on conventional banks’ deposits. We also find that although unexpected variations in the inflation rate have positive impacts, unexpected variations in the real interest rate adversely affect conventional banks’ deposits. In the case of Islamic banks, only the capital adequacy ratio, bank size, and inflation rate have a significant impact on deposit growth. The results also reveal that the capital adequacy ratio, credit risk, bank size, inflation rate, the real interest rate, and its uncertainty have significant impacts on conventional banks’ advances. Yet, we show that unexpected variations in the real interest rate positively affect conventional banks’ advances. Regarding Islamic banks, capital adequacy ratio, credit risk, bank size, inflation rate, and the real interest rate all have significant impacts on advances.
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Article Details
- Year: 2020
- Volume: 41
- Issue: 3
- Pages: 117 - 150
- Accepted: 09.07.2020
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DOI:
https://doi.org/10.5281/zenodo.17045250 -
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How to Cite?
Abdul Rashid, Samia Khalid (2020). Exploring the Impacts of Inflation, Interest Rates, and their Uncertainty on Deposits and Advances of Conventional and Islamic Banks of Pakistan. Journal of Economic Cooperation and Development, 41(3), 117-150. https://doi.org/10.5281/zenodo.17045250
