Investigate the Influence of Economy Policy Uncertainty on Bank Performance of Pakistan: Islamic versus Conventional Banks

Abstract

The purpose of this study is to investigate the influence of economic policy uncertainty (EPU) on the Commercial Banks (CBs) VS Islamic banks (IBs) performance of Pakistan. Secondary data has been taken from 2011 to 2021 from the annual reports of CBs and IBs of Pakistan. Since very little consideration has been given to the investigation of EPU on CBs Vs IBs performance in Pakistan. This study is a measured performance by Tobin s’ Q and banks' explicit factors like deposit, capital, loan, return on asset and return on equity and macroeconomic variables like GDP(g), unemployment, Inflation, and KIBOR. A panel data was applied with regression analysis technique, on the basis of the Hausman test, random and fixed effect model. This examination endeavors to satisfy this hole by investigating the financial performance of CBs VS IBs. This study's results demonstrate that EPU has a pessimistic and significant impact on bank performance. Islamic and commercial banks of Pakistan should deal with economic policy and macroeconomic variables which determine their performance. This study contributes to the literature and to the best of the author's knowledge this is the absolute first article that explores the influence of the EPU on CBs VS IBs performance in Pakistan using a narrative absolute first-time EPU index introduced by (Choudhary et al., 2020). Using this news-based continuous measure like monetary, fiscal, and political policy, regulation, FBR, Central bank of Pakistan, and legislation.