Abstract
The banking sector is the most vital partner of development for countries' economies. It has a remarkable contribution to the country's Gross Domestic Product. This study investigates the relationship between the market interest rate and commercial banks' financial performance. As Bangladesh's banking industry is growing, it is vital to maintain a more robust profitability level for its financial stability and soundness. Banks have some determinants that have a significant impact on their performance. The convenience sampling method is used to select the targeted sample. The study includes the time series data of eight years of fifteen commercial banks listed on the Dhaka Stock Exchange in Bangladesh. Multiple variable linear regression and correlation analysis are performed to examine the relationship of market interest rate with banks' profitability with statistical software, IBM SPSS version 25, and Microsoft excel. The study explored that the market interest rate has a significant positive impact on banks' profitability. It is also found that the lending rate and interest rate spread are significantly correlated with the banks' financial performance. The study recommended that banks make their investment to make a higher profit margin to enhance their management and financial soundness efficiency.
Highlights
The banking sector is the most vital partner of development for countries' economies
This study mainly focuses on x-ray the relationship of interest rate spread, the difference between the lending rate and the deposit rate with commercial banks' financial performance
Our model shows the positive relationship between the spread rate, the difference between the lending rate and deposit rate
Summary
The banking sector is the most vital partner of development for countries' economies. Banks have to make a substantial interest rate spread along with other income. It is the primary source of income for the banking firms for the banks' sustainability. The more profitable a bank is, the more sustainable it will be. In this sector, market interest rates often play the role of attaining profitability, ensuring the banks' soundness and financial stability. Tan & Floros (2012) x-rays that the banking regulatory authority should further drive the banks' capital to raise the Net Interest Margin (NIM) to make substantial financial profitability for the banks' better sustainability. Loan demand exceeds the same supply, enabling banks to charge higher interest on loans than deposits to maximize profitability (Musah et al, 2018)
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