Financial system of a country is an important system in its economy. The sustainability and growth of banking sector is critical for development of the financial sector as well as economic growth. Economic development of a country is reflected through the soundness of its banking system. Therefore in order to sustain and grow, banks have to be financially sound. Many researchers in Pakistan and in other countries have conducted studies on evaluating the financial soundness of banking sector by using different tools and methods. Bankometer is used in this study to evaluate the financial soundness of banks. It is a new and efficient model and computationally less expensive than other models like CAMELs and CLSA-stress test. To confirm its accuracy, it has been applied on each banks listed on Pakistan Stock Exchange over the period 2006-2014. Soundness of each bank has been computed separately which demonstrate which bank is super stable and which is close to insolvency. For comparison purpose, Z-score model is also used for banks listed on Pakistan Stock Exchange. These two models reported the same results, but however some are slightly different. As per the results of both models Bank of Punjab’s financial soundness is in grey area and need to be enhanced to reach in the protected zone with a score of soundness (70).

Financial system of a country is predominantly the system in the financial market which deals with business or transactions in money. Arshad (2005) showed that financial depth exerts positive impact on economic growth in the long run. Goldsmith (1969), McKinnon (1973) and Shaw (1973) conducted pioneer studies addressing the relationship between financial development and economic growth. However, it still remains a crucial issue of discussion in developing economies. To link financial development to growth, there is a theoretical argument, i.e., if the financial system is well-developed then it will perform its intended functions and roles to increase the efficiency of intermediation by reducing many costs like monitoring and transaction cost. A sound financial system increases the chances of investment by funding good business opportunities, and by investing in different businesses that can diversify risks.

Economic development of a country is reflected through the soundness of its banking system because banks play an important and effective role in their economic development, as they contribute to the economic development and growth by granting loans for trade, helping in physical and human capital formation. For an economy, banks act as oil for its wheels by offering attractive schemes of savings and by granting credits. Financial system of Pakistan is mainly based on its banking sector. Nimalathasan (2008) opines that banks are old institutions that are contributing to the economic development, and in modern world, banking is treated as an important service industry. Now its functions are not limited to basic services, instead it is an important source of finance for business and projects.

Financial Risk Management Journal, Altman Z-Score, CAMEL, CLSA-stress, Measuring Financial, Soundness Using Bankometer, Evaluating, Financial Soundness, Banks, Bankometer on Pakistani Listed Banks.