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Analyzing the Impact of Industry-Specific Loan Disbursement on Profitability in the Banking Sector of Bangladesh

Author

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  • Gopal Karmakar
  • Sujan Chandra Paul

Abstract

This study examines the correlation between industry-specific loan disbursement and profitability in the banking sector of Bangladesh, with a particular focus on the influence of targeted lending on profitability. The study examines the impact of different variables such as total assets, total revenue, non-performing loans, and sector-specific loans (agricultural, transportation, construction, textile, pharmaceuticals, and food procurement), on profit after tax (PAT) by analyzing data from 41 commercial banks between 2009 and 2022. By employing various techniques such as Pooled Ordinary Least Squares (POLS), Two-Stage Least Squares (2SLS), and the Generalized Method of Moments (GMM), we have determined that total assets have a noteworthy adverse effect on PAT in both POLS and 2SLS models. Conversely, construction loans have a positive influence on PAT in these models. The total revenue consistently has a favorable effect on the profit after tax (PAT) in all models. In the GMM model, transportation loans and textile loans have a notable adverse effect on PAT, but pharmaceutical loans have a slight favorable effect. The presence of non-performing loans, total loans, agricultural loans, and food procurement loans does not have a substantial impact on the profitability after tax (PAT) in any of the models. So overall total revenue, construction loan and pharmaceutical loan have a positive impact on PAT and total assets, transportation loan and textile loan have a negative impact on PAT. This study emphasizes the significance of strategic lending in underdeveloped industries and provides practical implications for banking professionals and regulators to identify high-risk lending sectors and devise measures to improve long-term profitability.Â

Suggested Citation

  • Gopal Karmakar & Sujan Chandra Paul, 2024. "Analyzing the Impact of Industry-Specific Loan Disbursement on Profitability in the Banking Sector of Bangladesh," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 13(2), pages 29-39, June.
    • Handle: RePEc:rbs:ijfbss:v:13:y:2024:i:2:id:3453
    DOI: 10.20525/ijfbs.v13i2.3453
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    References listed on IDEAS

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    1. Ali Saleh Alarussi & Sami Mohammed Alhaderi, 2018. "Factors affecting profitability in Malaysia," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 45(3), pages 442-458, August.
    2. Segun Thompson Bolarinwa & Richard Olaolu Olayeni & Xuan Vinh Vo, 2021. "Is there a nonlinear relationship between nonperforming loans and bank profitability? Evidence from dynamic panel threshold," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(3), pages 649-661, April.
    3. Ullah, Nazim, 2016. "Influencing Factors of Profitability on the Banking Industry : A case study of GCC countries," MPRA Paper 69124, University Library of Munich, Germany.
    4. SARKER Sandip & GHOSH Sujan Kumar & PALIT Mollika, 2015. "Role Of Banking-Sector To Inclusive Growth Through Inclusive Finance In Bangladesh," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 10(2), pages 145-159, August.
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