An Empirical Analysis of Profitability on Commercial Banks: A Study of Bangladesh

Abstract

The main objective of the study is the empirical analysis of profitability of commercial bank through evaluating the effect of leverage, operating efficiency, non-performing loan and capital adequacy. For accomplishing this objective, secondary data have been used which have been collected from annual reports of 20 commercial banks during the period of 2013 2022. To obtain more efficient results the present study has used three profitability indicators earnings per share (EPS), return on equity (ROE) and return of asset (ROA); as dependent variables and Debt to Equity Ratio (DER), Operating Expenses to Operating Profit (BOPO), Non-Performing Loan and Capital Adequacy Ratio (CAR); as independent variables. To analyze the data three analytical techniques (pooled ordinary least square model; fixed-effect model and random-effects model) has been used to run regression model and to select the appropriate results F Test, Breusch and Pagan LM Test and Hausman Test have ben employed. Descriptive statistics, correlation matrix, regression method and hypothesis testing have been used to analyze the data. Among the three profitability indicators EPS has cooperatively high mean value than ROE and ROA which indicates that the banks have miss opportunities. The analytical results of the study show that DER has significant negative effect on ROE insignificant negative effect on ROA and EPS. CAR has significant negative effect on ROE, ROA while CAR has insignificant negative effect on EPS. NPL has insignificant negative effect on ROE while NPL has significant negative effect on ROA, EPS. BOPO has insignificant positive effect on ROE, ROA and EPS. Banks should give special focus to increase the profit to improve bank profitability and also should be careful of selecting borrowers.