Liquidity-Profitability Relationship in Bangladesh Banking Industry (original) (raw)
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Assessing the Impact of Liquidity on Profitability: Specific to the Banking Industry of Bangladesh
The present study investigates whether liquidity positively or negatively stimulates the profitability of commercial banks of Bangladesh. Methodology: The analysis has been performed on 5 randomly selected banks over a period of 10 years (2011-2020). The respective banks' annual reports were the sources of secondary data based on which the study has been performed. For study purpose, dominant profitability ratios are studied along with the calculation of liquidity. ROA served profitability measures being considered as dependent variables whereas Loan-Deposit, Deposit-Assets, & Cash-Deposit ratios served liquidity measures being considered as independent variables. Ordinary Least Square Models have been made use of testing how liquidity affects the banking sector's profitability. Findings: From the analysis, it is founded that a rise in the banks' aforementioned liquidity ratio would escalate the Return on Assets i.e. profitability. Practical Implications: The study has evident that commercial banks of Bangladesh might have a better balance between the profitability and liquidity. Originality: The impact of liquidity on profitability has been stated in this paper which considered data from randomly selected 5 banks. The outcomes of the paper will demonstrate valuable addition to the existing research work in the related field. Research Limitations: Only 5 randomly selected commercial banks among 61 scheduled banks of Bangladesh were the study samples for which the overall financial scenario is difficult to know. It is also quite impossible to comment on the liquidity and profitability position as well as their relationship by considering only 5 banks.
The Relationship between Liquidity and Profitability of Listed Banks of Bangladesh
The main purpose of this study is to examine the impact of liquidity on firm’s profitability. All the listed banks of DSE are selected for this purpose. Here we have find out the effect of independent variable (Temporary Investment Ratio) and control variable (Firm Size) over the dependent variables (ROA). For this study we have used panel data which includes 30 banks’ 5 year analysis. Trends of the ratios and element were examined. A model have been used to make the regression analysis. Here, secondary data have been used which were collected from the annual reports and calculated for 5 year period (2012-2016). We have found that there is a significant positive association between the performance of firms’ profitability and the liquidity of the sampled firms in Bangladesh. That means liquidity is relevant to profitability.
Influence of Liquidity on Profitability of Commercial Bank’s in Bangladesh
2020
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
International Journal of Economics and Financial Issues, 2023
This paper aims at investigating the relationship between profitability and liquidity of the State-Owned Commercial Banks of Bangladesh. An important motive of this study is to provide valuable insights into how liquidity influences profitability. There are various research papers on liquidity exposure and the profitability relationship of banks in Bangladesh. But those researches are separately conducted for conventional or Islamic banks or there is a comparative analysis of both banks. But there is little research on the state-owned banking industry. During the Pandemic the banking industry of Bangladesh was affected severely in respect of liquidity risk and it also affected its profitability. There is no recent paper focused on this study. So, this study will try to identify the significant factors that affect the liquidity of a bank and its profitability. In this regard, 10 years' data from Annual Report of the State-Owned Commercial Banks and macroeconomic data from Bangladesh Bank website and several journals have been collected from 2012 to 2021. This study primarily aims at exploring the liquidity-profitability relationship using econometric model. Loan to Deposit ratio is used measuring liquidity of a bank. Other control variables Loan Loss Provision to Total Asset (LLPTA) for credit risk, Equity to Total Asset (EQTA) for capital efficiency, Operational expense to Total Asset (OPEXTA) for operational efficiency, Total Asset (TA) for Bank size, Non-performing Loan (NPL) for asset quality, Gross Domestic Product (GDP) for economy size, Inflation (INF) for consumer price index, Interest Rate (INT) for opportunity cost, and the Unemployment rate for measuring labor force. The major finding of this study show that there is a significant positive relationship between liquidity risk and profitability. Among bank-specific variables credit risk, capital efficiency, and bank size have a significant relationship with Profitability which also supports the theory. Macroeconomic variables like interest rate, inflation rate, and GDP have a significant relationship with profitability which also supports the theory. Here BDBL and BASIC should have maintained the liquidity standard mentioned by Bangladesh Bank and BIS to mitigate their liquidity crisis. This study also shows that there is no severe effect of the COVID pandemic on the State-Owned Commercial Banks of Bangladesh. The findings of this study will provide valuable insights for banks and regulators to make informed decisions regarding risk management, liquidity decision, capital allocation, and strategic planning.
Impact of Liquidity on Islamic Banks' Profitability: Evidence from Bangladesh
This study examines the impact of liquidity on Islamic banks" profitability during an 11 years period of 2001 to 2011. To explore and interpret the results the study has taken samples from five Islamic banks that have been in operation in Bangladesh on or before 2001 to till date. In order to construct the liquidity model it used four liquidity variables namely cash & due from banks to total assets (CDTA), cash & due from banks to total deposits (CDDEP), investment to total assets (INVSTA) and investment to total deposits (INVSDEP). According to adjusted R squares profitability variables return on assets (ROA), return on equity (ROE) and return on deposits (ROD) are respectively 17.1%, 4.5% and 24.6% dependent on independent variables. The statistical results suggest that CDTA is found insignificant with all profitability variables, whereas CDDEP is individually significant with all profitability variables except ROE. On the other hand INVSTA and INVSDEP are recognized signific...
Investigating Relationship Between Liquidity and Profitability Ratios in Banks
International Journal of Social Science Research and Review
There is no doubt that with the intensification of the financial and political crisis in recent years in Afghanistan, many banks faced a severe financial and profitability crisis, in general, among many registered and official banks in the Central Bank of Afghanistan, a large number it suffers from liquidity problem and lack of profitability. Liquidity refers to how assets can be converted into cash at the earliest time or at the lowest cost, which is called an asset with high liquidity. In terms of liquidity, the asset's liquidity is high, so it can be converted into cash at a very low cost and quickly. The higher the liquidity of an asset, the more useful it will be. Also, profitability shows the bank's ability to earn income from its assets. After examining variables such as (benefit or profitability, return on capital and liquid assets), this research examines the relationship between banks' liquidity ratios and profitability using multivariable linear regression dur...
Influence of Liquidity on Profitability: Evidence from Nepalese Banks
International Journal of Multidisciplinary and Current Research, 2018
This study seeks to examine the relationship between the liquidity and the profitability of commercial Banks in Nepal. In this connection, 14 Nepalese commercial banks were selected as study samples and their financial data were gathered from the annual reports of concerned banks for the period of 2008-2017. In this study, Return on assets and net profit margin were used as indicator of profitability while liquidity ratio, investment ratio and capital ratio were used as a proxy of liquidity measures. This study used inferential statistics to explain the main features of a collection of data in quantitative terms while correlation and linear regression analysis are used for analyzing the data. Results showed that more than 49 percent bank profitability measured by return on assets and net profit margin is predicted by the liquidity variables. This empirical analysis reveals that there is insignificant positive relationship between liquidity ratio and return on assets. Similarly, there is insignificant negative relationship between investment ratio and capital ratio with return on assets. It is also found that there is insignificant positive relationship of net profit margin with liquidity ratio and investment ratio. However the net profit margin is significantly negatively related with capital ratio. Based on the results it is concluded that the liquidity measure are not statistically significant in determining the profitability of commercial banks in Nepal except the capital ratio.
2017
Liquidity is a critical phenomenon for maintaining both profitability and maximum utilization of resources including both human and non-human, by investing more and retaining less money deposited. But if there is an uncontrolled mismatch between assets and liabilities due to inefficient management of liquidity, a bank may not survive and face tremendous difficulties in managing its operations. This study attempts to measure the efficiency of liquidity management for profitability and asset utilization in the banking sector of Bangladesh. 10 private commercial banks were selected using convenience sampling. Data was collected on Cash and Cash Equivalent, Return on Assets, Total operating income, Earnings per share, Net asset value, No. of Branches and No. of employee. The time frame of the study was from 2010 to 2014. Findings showed that Total operating income and number of employees as a representative of profitability and asset efficiency respectively, influence cash and cash equi...
Liquidity Risk and Performance: A Study on the Banking Sector of Bangladesh
Khulna University Business Review, 2018
Purpose: The aim of the study is to find out relationship between liquidity risk and bank performance. This study has been conducted based on secondary data collected from the annual reports of selected banks. Design: This is a causal study where dependent variable is bank performance (BP) which is the combination of two factors namely return on assets (ROA) and return on equity (ROE). Independent variables are current ratio (CR), loan to deposit ratio (LDR) and liquid asset to total asset ratio (LATAR). The study has been conducted on secondary data that has been collected from the annual reports of the banks. Multiple regression analysis has been applied to actualize research objectives. Findings: The study shows that there is no significant relationship between current ratio and bank performance, on the other hand effect of loan to deposit ratio and liquid asset to total asset ratio have statistically significant relations with bank performance. The study identifies negative rela...
Impact of Liquidity on Profitability of Nepalese Commercial Banks
This paper seeks at investigating the relationship between the liquidity and the profitability of commercial banks in Nepal. Ten out of Twenty seven listed commercial banks were involved in the study covering the period from 2013 to 2019. This study is based on the secondary data, which are extracted from Bank Supervision Reports published by Nepal Rastra Bank and annual reports of the selected commercial banks. The liquidity indicators are credit-deposit ratio (CDR), cash-deposit ratio (CADR) and assets quality (AQ), while return on equity (ROE) and return on assets (ROA) are the proxies for profitability. By using Hausman test and thereafter fixed effects approach, the result showed that assets quality (AQ) has negative and significant relationship with return on assets (ROA) whereas it has positive and significant relationship with return on equity (ROE). Cash-deposit ratio (CADR) has positive and insignificant relationship with return on assets (ROA) and return on equity (ROE). However, the study reveals that credit-deposit (CDR) has positive but insignificant relationship with ROA and has negative and insignificant relationship with return on equity (ROE).