Abstract

In Pakistan, banks are experiencing a significant increase in supply of loans. Trend of financing through banks increases with passage of time. The purpose of this research paper is to investigate the major factors which have determining role in the supply of loans in local market of Pakistan. Statistical techniques have been used to relate the supply of loans with deposits, weighted average rate of returns on loans, and rate inflation. The data used were collected from various published reports of State Bank of Pakistan, Federal Bureau of Statistics, and Economic Survey of Pakistan on monthly basis for the period of 1991 to 2009. The results reported that the supply of loan is positively related with the inflation and negatively associated with the weighted average rate of return on loans sanctioned by banks. Moreover, the amount of deposits is found to positively predict the loan supply by the banking sector of Pakistan.

Key words: weighted average rate of return, advances, deposits, inflation, consumer price index, Pakistan, banking system.