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Determinants of bank profitability in a developing economy: Empirical evidence from Bangladesh

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  • Fadzlan Sufian
  • Muzafar Shah Habibullah

Abstract

This study seeks to examine the performance of 37 Bangladeshi commercial banks between 1997 and 2004. The empirical findings of this study suggest that bank specific characteristics, in particular loans intensity, credit risk, and cost have positive and significant impacts on bank performance, while non‐interest income exhibits negative relationship with bank profitability. During the period under study the results suggest that the impact of size is not uniform across the various measures employed. The empirical findings suggest that size has a negative impact on return on average equity (ROAE), while the opposite is true for return on average assets (ROAA) and net interest margins (NIM). As for the impact of macroeconomic indicators, we conclude that the variables have no significant impact on bank profitability, except for inflation which has a negative relationship with Bangladeshi banks profitability.

Suggested Citation

  • Fadzlan Sufian & Muzafar Shah Habibullah, 2009. "Determinants of bank profitability in a developing economy: Empirical evidence from Bangladesh," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 10(3), pages 207-217, April.
    • Handle: RePEc:taf:jbemgt:v:10:y:2009:i:3:p:207-217
    DOI: 10.3846/1611-1699.2009.10.207-217
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    References listed on IDEAS

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    1. John V. Duca & Mary M. McLaughlin, 1990. "Developments affecting the profitability of commercial banks," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jul, pages 477-499.
    2. Eichengreen, Barry & Gibson, Heather D, 2001. "Greek Banking at the Dawn of the New Millennium," CEPR Discussion Papers 2791, C.E.P.R. Discussion Papers.
    3. Samy Ben Naceur & Mohammed Omran, 2008. "The Effects of Bank Regulations, Competition and Financial Reforms on MENA Banks’ Profitability," Working Papers 449, Economic Research Forum, revised 09 Jan 2008.
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