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Liquidity-Profitability Relationship in Bangladesh Banking Industry

Author

Listed:
  • Afia Akter
  • Khaled Mahmud

Abstract

This study explored the relationship between liquidity (measured as current ratio) and profitability (measured as return on assets) in the banking industry in Bangladesh. We have considered twelve banks in four different sectors (Government banks, Islami banks, multinational banks and private commercial banks). We tried to figure out how much liquidity of a bank can explain its profitability. We ran linear regression to find out the extent of relationship between bank’s liquidity and profitability (significance level was 10%). Individually all the sectors show no significant relationship between liquidity and profitability. Even the overall banking industry shows the same result. We considers year just before recession (2006) to post-recession (2011). We showed graphically how liquidity and profitability of these sectors varied over last couple of years. Government banks showed variable liquidity, while other sectors were steady. But, there were much fluctuations in profitability in between these times in all the sectors. Finally, we concluded that based on our sample and category, there is no significant relationship between liquidity and profitability in banks of different sectors in Bangladesh.

Suggested Citation

  • Afia Akter & Khaled Mahmud, 2014. "Liquidity-Profitability Relationship in Bangladesh Banking Industry," International Journal of Empirical Finance, Research Academy of Social Sciences, vol. 2(4), pages 143-151.
    • Handle: RePEc:rss:jnljef:v2i4p1
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    Cited by:

    1. Omar Durrah & Abdul Aziz Abdul Rahman & Syed Ahsan Jamil & Nour Aldeen Ghafeer, 2016. "Exploring the Relationship between Liquidity Ratios and Indicators of Financial Performance: An Analytical Study on Food Industrial Companies Listed in Amman Bursa," International Journal of Economics and Financial Issues, Econjournals, vol. 6(2), pages 435-441.
    2. Sujan Chandra Paul & Probir Kumar Bhowmik & Mehbuba Nayan Famanna, 2021. "Impact of Liquidity on Profitability: A Study on the Commercial Banks in Bangladesh," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 11(1), pages 1-4.
    3. Shawuya Jigeer & Ekaterina Koroleva, 2023. "The Determinants of Profitability in the City Commercial Banks: Case of China," Risks, MDPI, vol. 11(3), pages 1-21, March.
    4. Sardar Shaker Ibrahim, 2017. "The Impacts of Liquidity on Profitability in Banking Sectors of Iraq: A Case of Iraqi Commercial Banks," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 6(1), pages 113-121, January.

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