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Unlocking Profitability: Exploring the Impact of Bank-Specific and Macroeconomic Determinants on Return on Equity in Commercial Banking Sector of Bangladesh

Author

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  • Nishat Rumaly

    (Department of Finance and Banking, Jashore University of Science and Technology, Bangladesh.)

Abstract

This study investigates the factors influencing Return on Equity (ROE) within the banking sector of Bangladesh by analyzing a comprehensive dataset spanning from the year 2011 to 2020. Utilizing a combination of econometric techniques, including the one-step difference GMM, Driscoll-Kraay estimator, and Panel-Corrected Standard Errors (PCSE) methods, this study analyzes the influence of various bank-specific and macroeconomic variables. The findings reveal a nuanced pattern of impact on ROE. Earnings Per Share (EPS), Capital Adequacy Ratio (CAR), and Bank Spread exhibit a significant positive influence on ROE, reflecting the importance of profitability, capital strength, and interest rate spreads. Conversely, asset size, operating cost-to-loans ratio, total equity-to-debt ratio, and inflation exert a significant negative impact on ROE, highlighting the challenges associated with growth, cost efficiency, leverage, and inflationary pressures. These findings provide a multifaceted perspective on the dynamics of ROE, offering valuable insights for banks and policymakers striving to optimize financial performance and stability in the ever-changing economic landscape.

Suggested Citation

  • Nishat Rumaly, 2023. "Unlocking Profitability: Exploring the Impact of Bank-Specific and Macroeconomic Determinants on Return on Equity in Commercial Banking Sector of Bangladesh," International Journal of Economics and Financial Issues, Econjournals, vol. 13(6), pages 107-115, November.
    • Handle: RePEc:eco:journ1:2023-06-13
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    References listed on IDEAS

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    8. Eissa A. Al-Homaidi & Mosab I. Tabash & Najib H. S. Farhan & Faozi A. Almaqtari, 2018. "Bank-specific and macro-economic determinants of profitability of Indian commercial banks: A panel data approach," Cogent Economics & Finance, Taylor & Francis Journals, vol. 6(1), pages 1548072-154, January.
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    More about this item

    Keywords

    Profitability; Return on Equity; Dif-GMM; PCSE; Driscoll-Kraay; Bangladesh;
    All these keywords.

    JEL classification:

    • E7 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics
    • G2 - Financial Economics - - Financial Institutions and Services
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics

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