Effect of Leverage, Operating Efficiency, Non-Performing Loan, and Capital Adequacy Ratio on Profitability of Commercial Banks in Bangladesh

Abstract

The present study analyzes the influence of leverage, operating efficiency, non-performing loan, and capital adequacy ratio on the profitability of commercial banks in Bangladesh. The study selected four state-owned commercial banks and six private commercial banks as samples purposively. The study uses secondary data collected from annual reports of sample banks. The study covers balanced panel data for a period of four years from 2017 to 2020. Panel data regression model applies to meet the research questions and hypotheses of the study. The analytical result of the study shows that the leverage as measured by the debt-equity ratio (DER) has a negative and insignificant influence on profitability (ROA). Non-performing loan (NPL) has also a negative and insignificant effect on ROA. Higher DER and NPL lower the profitability position of the bank. The study finds that the operating efficiency as measured by BOPO ratio has a positive and insignificant impact on ROA. The study reveals that the capital adequacy ratio (CAR) has a positive and significant effect on ROA. The present study recommends that banks should be rational about the debt financing and selection of appropriate borrowers for upholding the healthy financial position in Bangladesh.

Factors Affecting Profitability on Banking Companies Listed on the Idx

“…The Non-Performing Loan does not affect the Return on Assets. The results of this study are in line with research conducted by (Abdurrohman, et l., 2020) and (Uddin, 2022) but differ from (Silaban, 2017) and (Putranto et al, 2017), which state that NPL has a negative effect on ROA and research conducted by (Dini and Manda, 2020) also shows that NPL can have a positive impact to ROA. NPL does not affect ROA because the bank can anticipate by selling collateral owned by the relevant debtor so that the bank will have additional assets in connection with the sale of the relevant debtor's collateral so that the bank's profitability is not too impacted.…”

The Effect of Corporate Social Responsibility, Credit Risk, and Leverage on the Financial Performance of Commercial Banks in Indonesia

“…The value of the NPL variable is 0.9466 and 0.1362, both> 0.05, which means that NPL has no significant effect on bank financial performance, Ha is rejected. This is not following research conducted by [15], which states that NPL has a significant negative effect on bank financial performance, but a following study conducted in Bangladesh [25] which shows the results of NPL has a negative but insignificant impact on ROA, as well as the results of research conducted by [22] which states that NPL has a positive but insignificant effect on ROE. Another [21] study shows that NPL does not significantly affect ROE and ROA.…”

Faktor - Faktor Yang Mempengaruhi Profitabilitas Pada Sektor Perbankan Yang Terdaftar Di Bei

“…Penelitiannya memperlihatkan adanya pengaruh positif. Menurut Uddin (2022) yang mendukung bahwa operating efficiency berpengaruh positif terhadap profitability bank. Pengaruh positif timbul saat bank menikmati adanya biaya yang dibebankan kepada nasabah serta kekuatan pasar secara relatif di pasar yang tidak kompetitif.…”

“…Operating efficiency merupakan rasio yang digunakan untuk mengetahui pengeluaran operasional terhadap total revenue (Uddin, 2022). Operating efficiency mengukur seberapa jauh kemampuan bank dalam menjalankan operasionalnya.…”

“…Namun, berbeda dari penelitianAdelopo et al, (2018) memperlihatkan pengaruh negatif bank size terhadap profitability. Berdasarkan penjelasan diatas, maka hipotesa dapat dirumuskan seperti di bawah ini: H1 : Bank size memiliki pengaruh terhadap profitabilitas Penelitian yang dilakukanUddin (2022) menghasilkan bahwa operating efficiency berpengaruh positif terhadap profitability. Bertolak belakang dengan hasil penemuan Djumahir & Ratnawati (2013) yang memperlihatkan semakin meningkatnya operating efficiency akan mengurangi profitability bank.…”