Banking Profitability
International Review of Business Research Papers
Vol. 8. No.4. May 2012. Pp.157 – 176
Bank Profitability: The Case of Bangladesh Mohammad Abu Sayeed*, Piyadasa Edirisuriya** and Mohammad Hoque***
This study attempts to examine the impact of asset and liability management on the profitability of commercial banks in Bangladesh.
Commercial banks are segmented into high profitable and low profitable and private and public banks. While applying Statistical Cost Accounting
(SCA) methods study finds high earning banks experience higher returns from their assets and lower returns from their liabilities than the low earning banks. Results are inconclusive with regard to private banks’ and public banks’ returns. This study finds that assets management of large commercial banks is better than those of small banks, but they are not better than small banks in respect of liability management.
Keywords: Asset, Liability, banks, profitability
JEL classifications: E 42 E44 1. Introduction
Banks‟ profitability is of utmost concern in modern economy. Banks are in a business to receive deposits or liabilities and to issue debt securities on the one hand and create or invest in assets on the other hand (Fama, 1980). Commercial Banks i incur costs for their liabilities and earn income from their assets. Thus profitability of banks is directly affected by management of their assets and liabilities. In addition, different market and macroeconomic factors also influence the ability of the banks to make profits (Short, 1979;
Molyneux and Thornton, 1992; Athanasoglou et al, 2008). The asset and liability base of banks in developing countries are narrower than their counterparts in developed countries.
This study examines how asset and liability management together with external variables such as degree of market concentration and inflation rate impact the profitability of selected commercial banks in Bangladesh. The issue of the impact of
Vol. 8. No.4. May 2012. Pp.157 – 176
Bank Profitability: The Case of Bangladesh Mohammad Abu Sayeed*, Piyadasa Edirisuriya** and Mohammad Hoque***
This study attempts to examine the impact of asset and liability management on the profitability of commercial banks in Bangladesh.
Commercial banks are segmented into high profitable and low profitable and private and public banks. While applying Statistical Cost Accounting
(SCA) methods study finds high earning banks experience higher returns from their assets and lower returns from their liabilities than the low earning banks. Results are inconclusive with regard to private banks’ and public banks’ returns. This study finds that assets management of large commercial banks is better than those of small banks, but they are not better than small banks in respect of liability management.
Keywords: Asset, Liability, banks, profitability
JEL classifications: E 42 E44 1. Introduction
Banks‟ profitability is of utmost concern in modern economy. Banks are in a business to receive deposits or liabilities and to issue debt securities on the one hand and create or invest in assets on the other hand (Fama, 1980). Commercial Banks i incur costs for their liabilities and earn income from their assets. Thus profitability of banks is directly affected by management of their assets and liabilities. In addition, different market and macroeconomic factors also influence the ability of the banks to make profits (Short, 1979;
Molyneux and Thornton, 1992; Athanasoglou et al, 2008). The asset and liability base of banks in developing countries are narrower than their counterparts in developed countries.
This study examines how asset and liability management together with external variables such as degree of market concentration and inflation rate impact the profitability of selected commercial banks in Bangladesh. The issue of the impact of
References: 18, 121–136. Bangladesh Bank (2005) http://www.bangladesh-bank.org/pub/annual/anreport/ar0405/index0405.html Bangladesh Bank (2007) 13, 379-408. Fama, EF 1980, „Banking in the theory of finance‟, Journal of Monetary Economics 6, 3957. Iannotta, G, Nocera, G & Sironi, A 2007, „Ownership structure, risk and performance in the European banking industry‟, Journal of Banking and Finance 31, 2127-2149 14, 1319-1324. Kwast, ML & Rose, JT 1982, „Pricing, operating efficiency, and profitability among large Journal of Banking and Finance 16, 1173-1178. Oguzsoy, CB & Guven, S 1997, „Thoery and Methodology: Bank asset and liability