CAUSAL NEXUS OF THE NET INTEREST MARGIN AND NON-INTEREST INCOME:EVIDENCE FROM THE PAKISTAN BANKING INDUSTRY

Global financial crises of 2007-2008 nearly demolished the banking structures all over the world, including the insurance and financial corporations. The banking sector of Pakistan remains significantly strong and stable during the global financial crises. This seeks the attention of the study as what factors build this shield for banking industry of Pakistan that it remained safe from this global financial crunch. The previous literature researches indicate that more reliance on the non-interest income increases the risk, as compared to the banks having a reliance on the net interest margin. The current study examines the relationship between the net interest margin and non-interest income as to what extent Pakistani banks remained safe due to the more reliance on NIM. Secondaty data of 12 Pakistani banks comprising over 6 years financial statements are gathered and analysed. There is a relationship between NIM and NII in the long run and that Pakistani bank relies more on the net interest margin as compared to the non-interest income.