Loan growth drivers in state-owned banks: A fixed effects model approach

Abstract

This paper investigates the factors that affect loan growth in state-owned banks in Bangladesh. We collected data from 2012 – 2022. Our examination finds that loan growth in state-owned banks depends on several industry-dependent variables i.e. size, liquidity, efficiency, non-performing loans, etc. The influence of bank size, income, liquidity, non-performing loan ratio, and cost-to-income ratio is the main emphasis of this study's investigation into the factors influencing bank lending. According to the statistics, there is a significant positive correlation between size and lending. Bank liquidity and lending show a strong negative correlation. The study also found higher lending is associated with higher non-performing loans with marginal statistical significance. The efficiency ratio shows a substantial negative impact on lending. We apply OLS primarily followed by FE estimation. To check the validity of the regression models of the study, we take several diagnostic tests. To improve bank performance and stability, policymakers and bank management may benefit greatly from these results.