Abstract
Bank profitability plays a significant role in the growth and development of an emerging economy. The purpose of the study was to examine the impact of bank characteristics, industry concentration and macroeconomics variables on commercial bank profitability in Bangladesh from 2007-2017. Bank profitability is proxied by return on assets (ROA), return on equity (ROE) and net interest margin (NIM). The study is based on secondary data and Hausman test has been performed using STATA software in favor of fixed effect modeling. Panel regressions shows that cost efficiency has significant negative impact on ROA and NIM. The positive impact of loan to deposit ratio with ROA suggests that efficient fund management including investment and assessed expenditure should be emphasized. Bank size has significant negative impact on all the measures of profitability, which indicates that monopolistic competition will reduce banking profit. Credit risk has significant positive impacts on ROE. Industry concentration measured by CR3 is positively related with ROE and has significant negative relation with bank profitability (ROA). Among macroeconomic variables inflation has significant positive and bank spread has significant negative impact on ROE. The coefficients of all the macroeconomic variables have been found to be significantly related to bank profitability while measured by NIM. Our study recommends further research with other explanatory variables such as, corporate governance, corporate social responsibility (CSR) and deposit insurance to accelerate the model and construct the econometric model by using structural equation modeling, mediation effect modeling etc.
Highlights
As an essential institutional and serviceable unit, the improved banking system plays a significant role for the transformation of the economy
Profitability is proxied by return on equity (ROE), return on assets (ROA), and net interest margin (NIM) as dependent variable accompanied by the set of bank-specific, industry concentration and macroeconomic factors as independent variables
This study provides comprehensive new insights of different banks’ specific managerial and internal issues that are accountable to enhance profitability of banks in Bangladesh
Summary
As an essential institutional and serviceable unit, the improved banking system plays a significant role for the transformation of the economy. Profitability is the capacity of a business to earn profit. Determining the present and past profitability and projecting upcoming profitability is very vital for any business sector. A sound banking sector provides a base for stabilizing financial system to accomplish earnings for developing economy. Some commercial banks are renowned for their profitability but some other banks are not performing well, this poses questions about some factors which will be dominated by the bank management to determine their profitability. In line with this dispute, we are trying to identify the extent of common determinants which drive bank profitability in the context of Bangladesh
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