Determinants of bank profitability for the selected private commercial banks in Bangladesh: a panel data analysis

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This study aims to investigate the determinants of profitability of fifteen selected private commercial banks in Bangladesh over the period 2005‒2015. The study emphasizes on the internal factors that affect bank profitability. This research uses panel data to explore the impact of nonperforming loan, cost to income ratio, loan to deposit ratio, commission fees, cost of fund and operating expenses on the profitability indicators of banks like return on asset and return on equity. The experimental outcomes have found strong evidence that nonperforming loan (NPL) and operating expenses have a significant effect on the profitability. Moreover, the results have shown that higher NPL may lead to less profit due to provision of classified loans. Again, higher loan to deposit (LD) ratio and cost of fund contribute towards profitability, but their impacts are not significant in the private commercial banks of Bangladesh.

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    • Figure 1. Ratio of net NPL to total loans by type of banks
    • Figure 2. Amount of NPL to total loans by type of banks
    • Figure 3. Required provision and provision maintained by all banks
    • Figure 4. Comparative position of provision adequacy all banks
    • Figure 5. Comparative position of the structure of the banking system
    • Figure 6. Comparative position of capital to risk weighted assets ratio by type of banks
    • Figure 7. Comparative position of NPL ratios by type of banks
    • Figure 8. Comparison of the cost of fund from the period 2005 to 2015
    • Figure 9. Comparison of the operating expenses from the period 2005 to 2015
    • Figure 10. Comparison of the commission earned from the period 2005 to 2015
    • Figure 11. Comparison of the return on asset from the period 2005 to 2015
    • Figure 12. Comparison of the nonperforming loans from the period 2005 to 2015
    • Table 1. Summary statistics
    • Table 2. Hausman test to find the appropriate model
    • Table 3. Model 3 (Determinants of return on asset, robust estimation)
    • Table 4. Model 4 (determinants of return on equity, robust estimation)
    • Table 5. Wooldridge test for autocorrelation
    • Table 6. Modified Wald test for group wise heteroscedasticity
    • Table 7. Correlation matrix model (ROA)
    • Table 8. Correlation matrix model (ROE)