Capital Management Efficiency and Profitability Nexus: Evidence from a State-Owned and a Private Bank in Bangladesh

Abstract

This study examines the relationship between capital management efficiency and profitability in the banking sector of Bangladesh by comparing Rupali Bank PLC, a state-owned commercial bank, and Eastern Bank PLC, a private commercial bank, over 2020-2024. The study applies a quantitative comparative design using secondary data from published annual reports and regulatory sources. Capital management is evaluated through the Capital to Risk-Weighted Asset Ratio (CRAR), Tier 1 capital ratio, Tier 2 capital ratio, Liquidity Coverage Ratio (LCR), and Net Stable Funding Ratio (NSFR), while profitability is assessed through Return on Assets (ROA) and Return on Equity (ROE). Descriptive trend analysis, Pearson correlation, and ordinary least squares regression are used to examine the association between capital adequacy and financial performance. The findings show a clear divergence between the two banks. Eastern Bank PLC maintained CRAR above 14% throughout the period, improved ROA from 1.22% to 1.34%, and increased ROE from 15.04% to 18.63%. Rupali Bank PLC experienced a decline in CRAR from 8.00% to 2.95%, very low ROA, and volatile ROE. Regression results indicate a positive association between CRAR and both ROA and ROE within the limited bank-year sample. The study concludes that strong core capital, efficient risk-weighted asset management, and sustainable profitability are essential for resilient capital management under Basel III.