The efficacy of liquidity management of Bangladeshi commercial banks: does liquidity underscore bank profitability.

Abstract

This study has been designed for examining the effectiveness of liquidity management on the profit-making ability of Nationalised Commercial Banks (NCBs) in Bangladesh for the duration of 2008-2018. Six banks are chosen purposively as the sample. The study relies on a balanced panel data set of 66 observations which are gathered from the annual reports of banks and analysed by random effects regression model. The empirical results reveal that the liquidity affects the profitability of banks to a great extent. The value of R² is 75.21%, which explains a variation of 75.21% in profit-making ability in terms of Return on Assets. Among the liquidity measures, Tier 1 Capital/Risk Weighted Assets has highly significant positive effect; Assets/Shareholders Equity and Bank Size in terms of Deposits have highly significant negative effect; Market Rate of Interest has some significant negative effect on profit making ability of the selected banks.