Effect of Leverage, Operating Efficiency, Non-Performing Loan, and Capital Adequacy Ratio on Profitability of Commercial Banks in Bangladesh

The present study analyzes the influence of leverage, operating efficiency, non-performing loan, and capital adequacy ratio on the profitability of commercial banks in Bangladesh. The study selected four state-owned commercial banks and six private commercial banks as samples purposively. The study uses secondary data collected from annual reports of sample banks. The study covers balanced panel data for a period of four years from 2017 to 2020. Panel data regression model applies to meet the research questions and hypotheses of the study. The analytical result of the study shows that the leverage as measured by the debt-equity ratio (DER) has a negative and insignificant influence on profitability (ROA). Non-performing loan (NPL) has also a negative and insignificant effect on ROA. Higher DER and NPL lower the profitability position of the bank. The study finds that the operating efficiency as measured by BOPO ratio has a positive and insignificant impact on ROA. The study reveals that the capital adequacy ratio (CAR) has a positive and significant effect on ROA. The present study recommends that banks should be rational about the debt financing and selection of appropriate borrowers for upholding the healthy financial position in Bangladesh.