Impact of Changes in Reserve Requirement on Banks Profitability: A Case of Commercial Banks in Pakistan

Abstract

This study examines the relationship between Reserve Requirement Ratio and Banks Profitability in Pakistan. It emphasizes on the effect of changes in CRR on commercial banking profitability and how it affects the ROE and ROA. The data collected for the research was secondary and quantitative time series data for the ten year period 2005-2014. Using correlation analysis followed by Linear Regression carries the empirical analysis of the study. The finding of study reveal that CRR taken as measure for Reserve Requirement has significant inverse relationship on banks’ financial performance, which is measured by ROA and ROE.

Keywords: Reserve Requirement Ratio (RRR), Cash Reserve Ratio (CRR), Return on Assets (ROA), Return on Equity (ROE)