Determinants of bank profitability in Bangladesh: The role of Basel III disclosure, bank-specific factors, and macroeconomic conditions

Abstract

Type of the article: Research ArticleAbstractThis study investigates the determinants of profitability for commercial banks in Bangladesh by evaluating the influence of bank-specific factors, Basel III disclosure, and macroeconomic conditions. Bank profitability is measured using three widely accepted indicators: Return on Assets (ROA), Return on Equity (ROE), Net Interest Margin (NIM). This study uses an unbalanced panel dataset of 42 commercial banks for the period 2004–2024. The empirical analysis is conducted using Pooled Ordinary Least Squares to examine the effects of Loan Growth Rate, Liquidity Ratio, Loan-to-Deposit Ratio, Basel III Disclosure Index, Bank size, Call Money Rate, and inflation on bank profitability. Findings indicate that the Liquidity Ratio is the most consistent and significant determinant of profitability, positively influencing ROA, ROE, and NIM. In contrast, the Loan-to-Deposit Ratio is negatively associated with ROA and ROE, demonstrating that excessive lending relative to deposits reduces financial performance. There is a statistically significant negative relationship between bank size and all profitability measures, indicating that more assets do not automatically mean bigger profits. There is a positive and significant relationship between inflation and profitability, implying that banks can adjust their pricing strategies and improve earnings during inflationary periods. The Basel III Disclosure Index is negatively associated with profitability and is statistically significant only for NIM. The derived models explain between 19.8% and 27.3% of the variation in profitability, and all models are jointly significant. The findings provide important insights for bank managers, regulators, and policymakers seeking to strengthen profitability, resilience, and long-term sustainability of commercial banks in Bangladesh.