Abstract
This study attempts to investigate capital strength, credit risk, ownership structure, bank size, non-interest income, cost efficiency, off-balance sheet activities, liquidity as potential bank specific determinants as well as growth in gross domestic products, inflation as potential macroeconomic determinants of bank profitability by taking 25 commercial banks from Bangladesh for a period ranges from 2006 to 2013. Three different measures of profitability namely return on assets (ROA), net interest margin over total assets (NIM) and return on equity (ROE) are used in the study. The empirical findings suggest that capital strength (both regulatory capital and equity capital) and loan intensity has positive and significant impact on profitability. Results also show that cost efficiency and off-balance sheet activities have negative and significant impact on bank profitability. The impact of other variables is not uniform in respect of different measures of profitability. Non-interest income, credit risk and GGDP are found as important determinant for NIM. Size has a positive and significant impact on ROA. Finally inflation has a negative and significant impact on ROA and ROE.
Highlights
Microeconomic activities as well as macroeconomic activities of an economy largely depend on banking sector
The findings reveal that the operating experience and the level of profits of the parent bank have a positive impact on the profitability of subsidiaries in abroad, while the size of subsidiary bank has a negative impact on profitability
It is seen from the table that the average value of three profitability measures are 1.33%, 2.38% and 16.69% for return on assets (ROA), net interest margin over total assets (NIM), and return on equity (ROE) respectively
Summary
Microeconomic activities as well as macroeconomic activities of an economy largely depend on banking sector. The main role of a banking system is to assist the flow of funds from savers to borrowers. Banks are such types of business where deposits are considered as liabilities and issuing debt securities are considered as assets on the other part (Fama, 1980). If a financial system is efficient, it should show profitability improvements, increasing volume of funds flowing from savers to borrowers, and better quality services for consumers (Sufian & Habibullah, 2009). In Bangladesh, banking institutions are playing significant roles in the expansion of the financial system and the economy of the nation. The banking sector of developing countries is less stable than developed countries (Beck & Rahman, 2006; Sufian & Habibullah, 2009; Uddin & Suzuki , 2011)
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