Impact of macroeconomic factors on bank performance in Bangladesh

Islam, Hasibul; Islam, M. Saidul; Soumia, Lalmi; Apon, Tasfiqure Amin; Tarin, Tanzika Imam

doi:10.21203/rs.3.rs-1859032/v1

Cited by 1 publication

(2 citation statements)

References 6 publications

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“…We have found that the GDP growth (GROWTH) has insignificant impact upon ROA of this study. While amid the studies carried in literature, according to Islam et al (2022) GDP was significant on ROA in Banks of Bangladesh. Yuan et al (2022) revealed that the GDP growth has positive & significant impact upon ROA in South Asian countries' commercial banks.…”

Section: Resultsmentioning

confidence: 96%

“…The pairwise granger-causality-test result showed that "exchange rate" does really granger cause ROA of Indian banks. Islam, Islam, Soumia, Apon, and Tarin (2022) explored that there was significant corelation between the macroeconomic factors & Banks' profitability in banks of Bangladesh and further discovered significant effects of GDP growth rate & Unemployment on ROA. Gautam and Gautam (2021) focused on the role of macroeconomic determinants on profitability of the commercial banks in Nepal & their results were found insignificant with ROA whereas, "GDP", "Interest rate" and "Inflation" were found to have predicting ability for ROE.…”

Section: Literature Reviewmentioning

confidence: 99%

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The Impact of Macroeconomic Factors on the Banking Sector’s Profitability in Pakistan

Ayub,

Bilqees,

Shah

2024

Pak. J. Humanit. Soc. Sci

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This research aims to study and analyze the impact of macroeconomic factor on the banking sector’s profitability in Pakistan. Banking sector of Pakistan is the backbone of its economy. The study explains the importance of banking industry of Pakistan and its achievements and evolvement throughout the years. The objective of the study is to examine the macroeconomic factors’ influence on the banking sector in Pakistan and to investigate that whether the profitability is only determined by the bank-specific internal factors or if it is also influenced by macroeconomic shocks and factors of the economy. The study is quantitative and secondary data is employed in order to conduct this paper. The sample size is financial data of scheduled banks in Pakistan from the year 2000 to2022, which is converted in quarter data and 84 observations have been incorporated in the study. “Returns on Assets” (ROA) is selected as dependent variable of this study since it measures profitability of banks. Whereas “Foreign Direct Investment” (FDI), “Exchange rate” (LER), “Inflation” (INF), “GDP growth” (GROWTH), “Liquidity” (LLIQ), “Total Deposits” (LT_DEP) and “Credit’s ratio” (CREDIT) of the banks are selected as independent variables. The data for bank specific variables is collected from the websites of “State Bank of Pakistan” (SBP) and “Federal Reserves of Economic Data” (FRED) while the data for macroeconomic variables is derived from the database of “World Bank” and “Macrotrends”. For empirical analysis, we have applied “Vector Autoregression” (VAR) model, followed by “Multivariate Granger Causality test”, “Impulse Response Function” (IRF) and “Forecast Error Variance Decomposition” (FEVD). The main findings of study reveals that the profitability of Banking sector in Pakistan is more influenced by its own internal factors rather than the external / macroeconomic factors. Amongst macroeconomic variables, “Foreign Direct Investment” (FDI) and “Inflation” (INF) are found to have the significant impact, while “Exchange rate” (LER) and “GDP growth rate” (GROWTH) are found to have insignificant impact on banks’ “Return on Assets” (ROA). All the internal factors of our study i.e. “Liquidity” (LLIQ), “Deposits” (LT_DEP) and “Credit ratio” (CREDIT) are found to have significant impact on profitability, which is measured through “Return on Assets” (ROA). In short, the profitability of banking sector in Pakistan is mainly influenced by bank-specific internal factors of the industry. The macroeconomic factors are only 50 percent % affective on the banks’ performance.

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Section: Resultsmentioning

confidence: 96%

Section: Literature Reviewmentioning

confidence: 99%