The banking sector is facing constant change and fierce competition. In this scenario, banks need to align themselves with the ever-changing environment by enhancing employee knowledge base to create capabilities. The basic objective of the current study is to examine the effect of knowledge management activities and dynamic capabilities on employee performance in the banking sector of Pakistan. This research employed a quantitative method to analyse the data. The sample was taken from employees who are working in public and private banks in Pakistan. A self-administered questionnaire was distributed among employees of public and private banks adopting stratified random sampling technique. Ordinary Least Square (OLS) method is used to testify the hypothesis and factor analysis to examine the validity and reduction of the items. This research finds that both knowledge management activities and dynamic capabilities have significant effect on employee performance in the banking sector of Pakistan.