Abstract:
This Research attempts to study the impact of Interest Rate
Changes on Net Interest Income of Pakistani Banks and has
therefore considered the case of National Bank of Pakistan
(NBP) which is Pakistan’s largest Commercial Bank in terms
of Asset size. The problem statement for this Research is
that whether an increase or decrease in Interest Rate
necessarily leads to Increase or decrease in Banking
Profit. To understand this concept it will find out the
relationship amongst Interest Rate and some important
factors which impact Net Interest Income like Non-
Performing Loans, Deposits, Borrowings, Assets, and
Advances etc.
Considering National Bank of Pakistan, the Research shows
that it is very hard to say that whether an increase in
Interest Rate will lead to increase in specific Asset of
the Bank e.g. Investment because it is highly dependent on
the Bank’s Policy. As for National Bank of Pakistan we saw
that the Interest Rates were increasing but at the same
time Investments decreased when most people would have
assumed that they would increase. This happened only
because the Bank wanted to gain on Advances and it did that
at the cost of Investment. With Reference to Advances, an
increase in Advances provides no guarantee that Net
Interest Income will increase like we saw in the case of
National Bank where Advances were increasing but the Bank’s
Net Interest Income was decreasing only because the amount
of Non-Performing Loans was rising. So because of this
ambiguity this topic was taken up for Research to see the
general impact of Interest Rate changes on Banking
