Does Non-bank Specific Factors Affect Profitability? Evidence from Non-bank Financial Institutions in Bangladesh

Abstract

Non-bank Financial Institutions (NBFIs), as dream riders of the economic enhancement, contribute significant figures to the Gross Domestic Product (GDP) through healthy competitions with commercial banks to keep the wheel of the economy moving. NBFIs mobilize the funds of surplus spending units to the areas of deficit spending units to expedite the allocation of scarce resources. The study aimed at finding out the effects of non-bank specific factors on the profitability of NBFIs in Bangladesh. Secondary data constitutes 160-panel observations of 16 NBFIs among 34 NBFIs in Bangladesh from 2010 to 2019. Ordinary Least Square Estimation (OLSE) and Fixed Effects Model have been used as statistical tools to obtain desired results. The study results revealed that Total Liabilities to Shareholders’ Equity (tlse), Total Liabilities to Total Assets (tlta), Loan, Leases & Advances to Total Assets (llata), Operating Cost to Total Assets (octa), and Non-bank Size (lgta) have significant effects on Return on Equity (ROE) measured as profitability indicator at 1% level of significance, and Term Deposits to Total Assets (tdta) has a significant effect on Return on Equity (ROE) at 5% level of significance. It has also been found that Operating Cost to Term Deposits (octd), Loan, Leases & Advances to Total Assets (llata), Term Deposits to Total Liabilities (tdtl), and Operating Cost to Total Income (octi) have no significant impacts on the profitability. Policymakers, analysts, and regulators can have useful insight into the dominant factors affecting NBFIs and take appropriate measures. The findings of the research might trigger new avenues for researchers and academicians.

Keywords: Non-bank Financial Institutions, ROE, OLSE, Fixed Effects Model, Non-bank Specific Factors, Bangladesh.

DOI: 10.7176/RJFA/12-20-04

Publication date:October 31^st 2021