EXPLORING THE DETERMINANTS OF PROFITABILITY IN BANGLADESH'S BANKING SECTOR: A COMPREHENSIVE ANALYSIS OF MARKET STRUCTURE, LIQUIDITY, AND MACROECONOMIC FACTORS
Authors/Creators
- 1. Assistant Professor, Department of Business Administration Prime University, Mirpur, Dhaka-1216, Bangladesh.
- 2. Department of Banking and Insurance, University of Dhaka, Dhaka-1000, Bangladesh.
Description
Abstract
Bank business in Bangladesh has experienced unique deviations over the last twenty years by adopting enough steadiness, liberalization and deregulation program. This study notifies the influence of rivalry, liquidity position and macroeconomic issues on the profitability of commercial banks in Bangladesh. The exploration process considers the impact of bank-specific, industry-specific and macroeconomic factors. Bank-level secondary data were obtained from the annual reports of 57 commercial banks in Bangladesh from 2007 to 2017. Driscoll and Kraay standard error is used to analyze the data. In our study, commercial banks’ profitability in Bangladesh is mostly influenced by firm-specific variables like expense management, employee productivity, liquidity position, bank size, and marginal cost. Industry rivalry determined by Herfindahl-Hirschman Index has a positive but insignificant influence on bank profitability aligned to the Structure Conduct Performance Hypothesis. Among macroeconomic variables, profitability of banks has a strong positive relationship with bank spread and GDP growth rate. The rate of inflation has a strong negative and statistically significant impact on bank profitability. This research study articulates some significant policy implications for quickening the profitability in the banking industry of Bangladesh.