A Study on Relationship between Capital Adequacy Ratio (CAR) and Profitability of Islamic Banks in Bangladesh

Abstract

The study explored the impact of capital adequacy ratio (CAR) on the profit of Islamic banks in Bangladesh. For conducting the study, we have used a panel data set from 2005 to 2018 of 5 Islamic banks operating in Bangladesh, and we also used the return on equity (ROE) as the proxy of profit. By employing the fixed effect (FE) model, we found that CAR had a significant positive impact, while inflation and domestic credit to GDP had a negative effect on profitability of Islamic banks in Bangladesh. The findings of our study have important implications for the stakeholders, customers, and regulators of banks in Bangladesh.