Impact of Liquidity on Islamic Banks' Profitability: Evidence from Bangladesh (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.
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
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.
Liquidity-Profitability Relationship in Bangladesh Banking Industry
This study explored the relationship between liquidity (measured as current ratio) and profitability (measured as return on assets) in the banking industry in Bangladesh. We have considered twelve banks in four different sectors (Government banks, Islami banks, multinational banks and private commercial banks). We tried to figure out how much liquidity of a bank can explain its profitability. We ran linear regression to find out the extent of relationship between bank's liquidity and profitability (significance level was 10%). Individually all the sectors show no significant relationship between liquidity and profitability. Even the overall banking industry shows the same result. We considers year just before recession (2006) to post-recession (2011). We showed graphically how liquidity and profitability of these sectors varied over last couple of years. Government banks showed variable liquidity, while other sectors were steady. But, there were much fluctuations in profitability in between these times in all the sectors. Finally, we concluded that based on our sample and category, there is no significant relationship between liquidity and profitability in banks of different sectors in Bangladesh.
The aim of this study is to examine and evaluate the profitability and liquidity of a group of 5 Conventional banks in Bangladesh with a group of 5 Bangladeshi Islamic banks. The study evaluates the profitability and liquidity of two types of banking system in Bangladesh for the period of 2008 to 2012. Different financial ratios i.e. Return on Asset (ROA), Return on Equity (ROE), Profit Expense Ratio (PER), Net Profit Margin (NPM), Earnings per Share (EPS), Profit per branch, Profit per employee have been used for evaluating profitability and Loan to Deposit ratio (LDR), Loan to Assets ratio (LAR) are used for evaluating liquidity of these 2 categories banks. T-test and F-test have been used in determining the significance of the differential performance of the two groups of bank. The study found that Islamic Banks are less preferable than Conventional banks in the year 2008 and 2009 in all the profitability indicators. In 2010, Conventional banks had been more profitable than Islamic banks except ROE, PER. In 2011 and 2012, Islamic banks' profitability performance is better than that of Conventional banks in the performance indicators except EPS, Profit per Branch and Profit per Employee. However, there is no significant difference in liquidity between the two sets of banks. LAR had been constantly higher in Islamic banks in all the years though LDR had not been higher during the same period. In 2010 and 2011, Conventional Banks' LDR is higher than the Islamic Bank. The reasons are that conventional banks in Bangladesh have longer history and experience in doing banking business and hold dominating position in the financial sector with its large share in the overall financial assets of Bangladesh as compared to Islamic banks, which in true sense, started only a few years back with all letter and spirit. The study also found that Islamic Banks are less profitable having less liquidity position during 2008-2012. However, it had improved considerably in its profitability during 2011 and 2012.
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...
International Journal of Academic Research in Economics and Management Sciences, 2017
In the corporate finance, liquidity management and profitability are widely debated areas. Liquidity management plays a dynamic role in determining the effectiveness of the banking sector with potential influence in smooth functioning. The objective of the study is to scrutinize the impact of liquidity management on the profitability of Pakistani banks, covering period of 2006-2016. The secondary financial data obtained from audited annual financial reports were analyzed using descriptive and inferential statistics. Return on assets (ROA) and Return on equity (ROE) have been used as measures of bank's profitability while as, Current Ratio (CR) advances to deposit ratio (ADR), Cash deposit ratio (CDR) and Deposit Assets Ratio (DAR) represented liquidity management. The result demonstrates that ADR, CDR and DAR
IAEME Publications, 2021
In the corporate finance literature liquidity and profitability is the main issue. Every firm tries to maximize its profits. If the firm pays too much attention on profitability, it may overlook the liquidity. In this way, the study is conducted to know the impact and relationship between liquidity and profitability. The study covered 5 listed Banks of Pakistan over a period of past 10 years from Jan 2008 to Dec 2017. Regression, Correlation analysis and descriptive statistics were used in the analysis and results shows the liquidity and Return on assets has significant relationship, but the liquidity and Return on Equity shows insignificant relationship among the listed banks of Pakistan. Banks are suggested to work on their strategies, to enhance the usage of assets and improve yields on shareholders.
Social Science Research Network, 2018
This paper seeks at investigating the effect of liquidity management on profitability in the Jordanian commercial banks during the time period (2005-2012). Thirteen banks have been chosen to express on the whole Jordanian commercial banks. The liquidity indicators are investment ratio, Quick ratio, capital ratio, net credit facilities/ total assets and liquid assets ratio, while return on equity (ROE) and return on assets (ROA) were the proxies for profitability. Augmented Dickey Fuller (ADF) stationary test model was used to test for a unit root in a time series of the research variables and then testing hypothesis by using regression analysis. The empirical results show that an increase in the quick ratio and the investment ratio of the available funds leads to an increase in the profitability, while an increase in the capital ratio and the liquid assets ratio leads to decrease in the profitability of the Jordanian commercial banks. The researcher recommends that there is a need for an optimum utilization of the available liquidity in a various aspects of investment in order to increase the banks' profitability, and banks should adopt a general framework of liquidity management to assure sufficient liquidity for executing their operations more efficiently, and they should initiate an analytical study of the evolution rates of liquidity and their ability to achieve a balance between sources and uses of funds.
Liquidity Management and Its Impact on Banks Profitability: A Perspective of Pakistan
2017
Purpose:-The basic aim of this research is to examine liquidity management impact on profitability in banking sector of Pakistan. Methodology: The secondary data used for this study and taking from publish annual report of ten banks (2006-2015). The data was analyzed by using correlation, descriptive statistics and regression techniques run on E-views. The quick, current, cash, interest coverage and capital adequacy ratios are taken as dimension of liquidity and return on asset, return on equity, and earning per share as dimension of profitability. Findings: The research finding shows that quick and capital adequacy ratio has positive impact on banks profitability determinants earnings per share and return on assets. The cash and current ratio has a negative relationship with return on assets. While interest coverage ratio is positively associated with return equity and earnings per share and is negatively associated with return on equity. Therefore overall empirical results show th...