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Impact of Bank Characteristics and Macroeconomic Factors on Banks’ Profitability: A Study on Emerging Economy

Author

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  • Mohammad Ahsan Uddin

    (Assistant Professor, Accounting Discipline, Department of Business Administration, Premier University, Chittagong, Bangladesh.)

  • Mohammad Rokibul Hossain

    (Assistant Professor, Department of Business Administration, Marketing Discipline, Faculty of Business Studies, Premier University, Chittagong, Bangladesh.)

Abstract

This study explores the impact of bank-specific characteristics and macroeconomic factors influence banks' profitability in an emerging economy. In order to evaluate the internal features of banks, the study takes into account a number of firm-level variables, such as the Liquidity Ratio, Loan-to-Deposit Ratio, Capital Adequacy Ratio, Investment Income, Non-Performing Loans, and Total Assets. The real interest rate, the GDP, and inflation as measured by the Consumer Price Index (CPI) are regarded as external macroeconomic variables. Return on Assets (ROA) and Interest Income are the two main metrics used to assess profitability. The research makes use of a panel data collection that includes 80 observations from 10 banks between 2014 and 2021. A multiple regression analysis is conducted to assess the impact of macroeconomic variables and bank-specific attributes on profitability. The findings demonstrate that capital adequacy ratio and investment income have large positive effects on profitability (ROA), whereas real interest rates, GDP, and non-performing loans have considerable negative effects. Liquidity, Loan-to-Deposit Ratio, Total Assets, and Inflation do not statistically significantly affect ROA.

Suggested Citation

  • Mohammad Ahsan Uddin & Mohammad Rokibul Hossain, 2024. "Impact of Bank Characteristics and Macroeconomic Factors on Banks’ Profitability: A Study on Emerging Economy," Journal of Scientific Reports, IJSAB International, vol. 7(1), pages 100-116.
    • Handle: RePEc:aif:report:v:7:y:2024:i:1:p:100-116
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    References listed on IDEAS

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