This study attempts to investigate the impact of monetary policy and macroeconomic
together with bank specific variables on bank performance and bank risk taking on their loan
portfolios. In this study, reserves and loan loss provision are selected as a proxy to measure bank
risk whereas return on assets is selected as a proxy for bank’s performance. The study also include
the two bank specific control variables such as bank size and bank capitalization, and
macroeconomic variables such as consumer price index and gross domestic product. This study
used fixed effect and random effect panel data estimation techniques on dataset of top twenty
Pakistanis banks from 2006 to 2020. This study confirms that bank risk taking positively linked
with gross domestic product, consumer price index but nothing to do with interbank offer rate.
However, the bank size have negative relationship with bank risk, and bank capital have no role
in changing bank risk. Whereas, bank performance is positively linked with the interbank offer,
gross domestic product and bank specific variables. The consumer price index don’t have any
effect on bank performance. Study findings will be helpful for banks management to mitigate
associated risks and enhance profitability in a more effective manner. However, for researchers it
helps to understand critical areas dealing with banks risk taking appetite and performance.