Abstract
This paper aims to drill down the impact of liquidity on commercial bank’s profitability in the banking sector of Bangladesh. To attain a sound outcome this paper used a sample of 10 commercial banks that are enlisted in Dhaka Stock Exchange. The duration of collecting data was from 2012 to 2019. For attaining the objective properly the paper used four measures of liquidity such as loan to deposit ratio, deposits to assets ratio, loan to asset ratio, and cash deposit ratio. Return on equity (ROE) and return on asset (ROA) is another measure to analyze the impact on profitability. The outcome of this paper states that the impact of liquidity on commercial bank’s profitability in Bangladesh is not statistically significant. Keywords: Profitability, ROE, ROA, Liquidity, loan to deposit ratio, deposits to assets ratio, loan to asset ratio, and cash deposit ratio. DOI: 10.7176/RJFA/11-14-11 Publication date: July 31 st 2020
Highlights
Banks are considered as the financial backbone of any economic system
This paper mostly focus on the impact of liquidity on profitability in commercial banks of Bangladesh
The outcome says that apart from Cash to Deposit ratio (CDR) there is a negative correlation between return on equity (ROE) other independent variables
Summary
Banks are considered as the financial backbone of any economic system. For mobilizing the fund from the surplus to deficit unit it plays the most significant roles (Mishkin, 2019). In Bangladesh, there are basically two types of bank such as scheduled banks and nonscheduled banks. The number of scheduled bank in Bangladesh is 60 which are classified in to several categories such as public limited banks, specialized banks, private commercial banks, and foreign banks (Bangladesh Bank, 2019). Experience says that bank’s stability are effected by several factors. Profitability and liquidity are considered as the most significant factors for that. For a successful operation liquidity is considered as the vital issues. For providing an uninterrupted banking service maintaining the adequate liquidity is must. Liquidity refers to the ability to meet the financial obligations on time. The others situation is called illiquid (Madura, 2018)
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