The Emerging Asia Pacific Capital Markets: Bangladesh

2023

This study investigates the factors that influence the capital adequacy of commercial banks in Bangladesh using panel data from 28 banks over the period of 2013-2019. Three analytical methods, including the Fixed Effect model, Random Effect model, and Pooled Ordinary Least Square (POLS) method, are employed to analyze two versions of the capital adequacy ratio, namely the Capital Adequacy Ratio (CAR) and Tier 1 Capital Ratio. The study reveals that capital adequacy is significantly affected by several independent variables, with leverage and liquidity risk having a negative and positive relationship, respectively. Additionally, the study finds a positive correlation between real GDP and net profit and capital adequacy, while inflation has a negative correlation. For the Tier 1 Ratio, the study shows no significant relationship between leverage and liquidity risk, but a positive correlation with the number of employees, net profit, and real GDP, while a negative correlation with size and GDP deflator. Pooled OLS analysis reveals a negative correlation with leverage, size, and inflation for both CAR and Tier 1 Capital Ratio, and a positive correlation with liquidity risk, net profit, and real GDP. Based on the Hausman test, the Random Effect model is deemed more suitable for this dataset. These findings have important implications for policymakers, investors, and bank managers in Bangladesh by providing insights into the factors that impact the capital ratios of commercial banks.

Section: Literature Reviewmentioning

confidence: 99%

Exploring the Determinants of Capital Adequacy in Commercial Banks: A Study of Bangladesh's Banking Sector

2023

“…Even though Bangladesh has achieved impressive economic growth due to a fast-growing manufacturing sector, solid remittance inflows and sustained reforms, resulting in a 8.15% GDP growth rate in 2019 and a near 7% growth rate in the last decade (Naoaj et al, 2021), liquidity risk is a critical issue in the banking sector of Bangladesh due to the high level of non-performing loans, the inadequacy of capital, and an underdeveloped interbank market. Several studies have investigated the determinants of liquidity risk in Bangladesh, highlighting various factors that influence the liquidity risk of banks in the country.…”

Section: Literature Reviewmentioning

confidence: 99%

Measuring Liquidity Risk and Its Determinants in Commercial Banks of Bangladesh: An Empirical Investigation

2023

This study analyzes the determinants of liquidity risk in the banking sector using panel data from 28 banks and three different models: Pooled, Fixed Effect, and Random Effect. The results show that leverage has a consistently positive effect on liquidity risk, while the regulatory environment and bank size have a negative effect. Return on assets (ROA) and capital adequacy ratio (CAR) have varying impacts depending on individual bank characteristics. Real GDP has a consistently negative relationship with liquidity risk. These findings provide valuable insights for policymakers and bank managers on how to manage liquidity risk in the banking sector.

“…Considering sustained macroeconomic reforms and prudent policies, Bangladesh has continued to experience robust GDP growth, with a growth rate of 8.15% in 2019, driven by a fast-growing manufacturing sector and solid remittance inflows (Naoaj et al, 2021). However, the global financial sectors, as well as Bangladesh's financial sector, have been subject to internal and external shocks caused by the pandemic.…”

Section: Introductionmentioning

confidence: 99%

Assessing the Relationship between Enhanced Capital Requirements and Banks' Cost of Equity: Evidence from Publicly Listed Banks in Bangladesh

Hosen

2023

This paper examines the relationship between the cost of equity and the level of capital maintenance for banks in Bangladesh. Using data from publicly listed scheduled commercial banks, the study finds a significant negative empirical relationship between the cost of equity and banks' capital maintenance level. Specifically, higher levels of equity lead to a reduced cost of equity, with a 10-percentage point increase in capital resulting in a 4.39 percentage point reduction. The study also finds that the quality of capital, particularly Tier 1 capital, heavily impacts the relationship between the two variables. Other control variables, such as profitability, liquidity, and non-performing loans, also impact the cost of equity. Overall, the study provides empirical evidence for the benefits of enhancing capital maintenance and improving the quality of capital to strengthen bank sustainability and financial sector stability in Bangladesh.