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Exploring the Drivers of Bank Risk in State-Owned Commercial Banks

Author

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  • Probir Kumar Bhowmik
  • Niluthpaul Sarker
  • Md. Jamil Sharif

Abstract

This paper investigates the factors that form bank risks in Bangladeshi state-owned banks. As a representation of bank risk, non-performing loans have been considered the dependent variable for this study. The relevant data have been extracted from six state-owned banks in Bangladesh from 2013 to 2022. The final dataset consists of 60 firm-year observations. The ordinary least square (OLS) regression with robust standard errors model is utilized to find the relationship of bank risks with determinants like asset size, efficiency, liquidity, profitability, leverage ratio, capital adequacy ratio, and loan to asset ratio. The findings say that bank size and loan-to-asset ratio have a highly significant positive relationship with bank risk, whereas profitability, capital adequacy ratio, and bank efficiency have a significant negative association with bank risk. On the other hand, leverage and liquidity are negatively and positively correlated with no statistical significance. To check the study's robustness, another proxy of bank risk, loan loss provision has been used and the results are almost similar. State-owned banks operate in every economy with a different mindset than the general commercial banks. Hence, policymakers should take necessary initiatives based on this study to bring down the high bank risks in state-owned banks in Bangladesh.

Suggested Citation

  • Probir Kumar Bhowmik & Niluthpaul Sarker & Md. Jamil Sharif, 2024. "Exploring the Drivers of Bank Risk in State-Owned Commercial Banks," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 13(4), pages 81-89, October.
    • Handle: RePEc:rbs:ijfbss:v:13:y:2024:i:4:id:3753
    DOI: 10.20525/ijfbs.v13i4.3753
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    References listed on IDEAS

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    1. Borio, Claudio & Zhu, Haibin, 2012. "Capital regulation, risk-taking and monetary policy: A missing link in the transmission mechanism?," Journal of Financial Stability, Elsevier, vol. 8(4), pages 236-251.
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