Determinants of Profitability- A Case from the State-owned Commercial Banks of Bangladesh

Abstract

This study is an attempt to investigate the impact of bank-specific and economy-specific determinants on the performance of selected State-owned Commercial Banks (SCB) operating in Bangladesh in terms of their profitability. This study considers three prominent SCBs, six bank specific determinants, two economy-specific determinants collected as secondary data from 2007-2014. Different financial ratios and statistical tools (descriptive statistics, Pearson’s correlation & regression analysis) have been utilized for verifying the hypotheses. The results showed that SCBs’ profitability (Return on Assets) has positive relationships with capital adequacy ratio(CAR), cost of fund ratio (COF), cost to income ratio (CIR), GDP growth ratio (GDPR) and negative relationship with classified loans to total loans ratio(CLTL), bank’s size (SIZ) and inflation (INFL).  Among them, CAR and GDPR are the significant determinants of their profitability over the study period.

Keywords:  Profitability, State-owned commercial Banks, Internal & External determinants.