Unveiling the nexus of macroeconomic factors on bank performance in Bangladesh

Abstract

The present study examines the nexus of macroeconomic factors on the banks performance in Bangladesh. It encompasses an analysis of 25 commercial banks, including both Islamic and conventional banks, spanning the period from 2012 to 2021. Employing the ordinary least square regression model, the study considers return on assets as the dependent variable, while the independent variables include GDP growth, inflation, and unemployment. The regression analysis reveals that the unemployment rate exerts a significant impact on the return on assets of banks in Bangladesh. In contrast, GDP growth and inflation do not exhibit a significant effect on the return on assets. Consequently, policymakers should account for the influence of unemployment rates on bank performance when formulating economic policies, emphasizing measures to reduce unemployment rates to enhance bank performance. This consideration is especially pertinent in the context of the COVID-19 pandemic, where policies aimed at preventing widespread unemployment could positively affect bank performance.

---

Keywords

• GDP
• Inflation
• Performance
• Return on Assets
• Unemployment.
• Bangladesh

References

1. Aburime, T. (2008). Determinants of bank profitability: Macroeconomic evidence from Nigeria. Available at SSRN 1231064. https://doi.org/10.2139/ssrn.1231064
2. Akani, H. W., Nwanna, I., & Mbachu, A. (2016). Effects of selected macroeconomic variables on commercial banks performance in Nigeria. IIARD International Journal of Banking and Finance, 2(3), 34-75.
3. Al-Homaidi, E. A., Tabash, M. I., Farhan, N. H. S., & Almaqtari, F. A. (2018). Bank-specific and macro-economic determinants of profitability of Indian commercial banks: A panel data approach. Cogent Economics & Finance, 6(1), 1548072. https://doi.org/10.1080/23322039.2018.1548072
4. Al-Mamun, A., Yasser, Q. R., Entebang, H., Rahman, A., Nathan, T. M., & Abu Mansor, S. (2014). Comparison between Islamic and Conventional Banking: Evidence from Malaysia. International Journal of Excellence in Islamic Banking and Finance, 182(1464), 1-14. https://doi.org/10.12816/0006958
5. Alim, M. A., Thaichon, P., Quach, S., Weaven, S., & Ghosh, T. (2023). Digital Technologies in Luxury Industry: Identifying the Future Aspects of Luxury Brand Management. In Luxury Marketing, Sustainability and Technology (pp. 15-36). Routledge.
6. Asif, M.H. et al. (2023). Do environmental knowledge and green trust matter for purchase intention of eco-friendly home appliances? An application of extended theory of planned behavior. Environmental Science and Pollution Research, 30(13), 37762-37774. https://doi.org/10.1007/s11356-022-24899-1
7. Baba, S., & Nasieku, T. (2016). Effect of macroeconomic factors on the financial performance of commercial banks in Nigeria. International Journal of Social Science and Information Technology, 2(IX).
8. Bangladesh Bank. (2023). Annual Report 2021-2022 [Annual Report]. Bangladesh Bank. https://www.bb.org.bd/pub/annual/anreport/ar2122.pdf

9. Bashir, A.-H. M. (2003). Determinants of profitability in Islamic banks: Some evidence from the Middle East. Islamic economic studies, 11(1).
10. Bhattarai, S. (2017). Determinants of Non-Performing Loan in Nepalese Commercial Banks. Economic Journal of Development Issues, 19(1-2), 22-38. https://doi.org/10.3126/ejdi.v19i1-2.17700
11. Biddle, G. C., Hilary, G., & Verdi, R. S. (2009). How does financial reporting quality relate to investment efficiency? Journal of Accounting and Economics, 48(2), 112-131. https://doi.org/10.1016/j.jacceco.2009.09.001
12. Bourke, P. (1989). Concentration and other determinants of bank profitability in Europe, North America and Australia. Journal of banking & Finance, 13(1), 65-79. https://doi.org/10.1016/0378-4266(89)90020-4
13. Brahmaiah, B. (2018). Factors influencing profitability of banks in India. Theoretical Economics Letters, 8(14), 3046. https://doi.org/10.4236/tel.[phone]
14. Çetin, M. et al., (2023). The impact of natural resources, economic growth, savings, and current account balance on financial sector development: Theory and empirical evidence. Resources Policy, 81, 103300.
15. Combey, A., & Togbenou, A. (1916). The bank sector performance and macroeconomics environment: Empirical evidence in Togo. International Journal of Economics and Finance, ISSN. https://doi.org/10.5539/ijef.v9n2p180
16. Davydenko, A. (2010). Determinants of bank profitability in Ukraine. Undergraduate economic review, 7(1), 2.
17. Demirgüç-Kunt, A., & Huizinga, H. (1999). Determinants of commercial bank interest margins and profitability: some international evidence. The World Bank Economic Review, 13(2), 379-408. https://doi.org/10.1093/wber/13.2.379
18. Dewi, V. I., Tan Lian Soei, C., & Surjoko, F. O. (2019). The Impact of Macroeconomic Factors on Firms Profitability (Evidence From Fast Moving Consumer Good Firms Listed on Indonesian Stock Exchange).
19. Dogru, T. et al. (2023). Employee turnover dynamics in the hospitality industry vs. the overall economy. Tourism Management, 99, 104783. https://doi.org/10.1016/j.tourman.2023.104783
20. Durbin, J., & Watson, G. S. (1951). Testing for serial correlation in least squares regression. II. Biometrika, 38(1-2), 159-178.
21. Eichengreen, B., & Gibson, H. D. (2001). Greek banking at the dawn of the new millennium. Available at SSRN 269391.
22. Eyüboğlu, K. (2016). Comparison the financial performances of developing countries'banking sectors with topsis method. Sosyal Bilimler Arastirmalari Dergisi(14).
23. Feldmann, H. (2012). Banking deregulation around the world, 1970s to 2000s: The impact on unemployment. International Review of Economics & Finance, 24, 26-42. https://doi.org/10.1016/j.iref.2012.01.003
24. Flamini, V., McDonald, C. A., & Schumacher, L. B. (2009). The determinants of commercial bank profitability in Sub-Saharan Africa. https://doi.org/10.5089/9781451871623.001
25. Folawewo, A. O., & Adeboje, O. M. (2017). Macroeconomic determinants of unemployment: Empirical evidence from economic community of West African states. African Development Review, 29(2), 197-210. https://doi.org/10.1111/1467-8268.12250
26. Guerrieri, L., & Harkrader, J. C. (2021). What drives bank performance? Economics Letters, 204, 109884. Ghosh, T., Parven, S., & Sakib, A. I. (2024). The interaction effects of social media-driven advertising on consumers’ purchase intention. Journal of Ekonomi, 6(1), 54-63.
27. Ghosh, T., Hossain, M. J., Bala, T., Sakib, A. I., & Alim, M. A. (2023). How Value Consciousness, Customer Engagement and Trust Create Brand Loyalty: Luxury Brand and Social Media Marketing Perspective. Academy of Marketing Studies Journal, 27(6).
28. Hasan, M. R., Rahman, K., Sakina, K., & Billah, N. B. (2019). Estimating Country Risk Premium and its Significance in Context of Bangladesh. The Proceedings of the 2nd International Conference on Business and Management (ICBM 2019).
29. Ghosh, T., Alim, M.A., & Hossain, M.J. (2021). The Role of Value Consciousness and Customer Engagement toward Brand Loyalty in Social Media Marketing: Luxury Brands Perspective. Proceedings of International Conference on Management & Entrepreneurship organized by Swinburne University of Technology, Malaysia, 22-24 July, 2021
30. Haralayya, B., & Aithal, P. (2021). Study on productive efficiency of banks in developing country. International Research Journal of Humanities and Interdisciplinary Studies (www. irjhis. com), 2(5), 184-194.
31. Hong, S. C., & Abdul Razak, S. H. (2015). The impact of nominal GDP and inflation on the financial performance of Islamic banks in Malaysia. Journal of Islamic Economics, Banking and Finance, 113(3281), 1-24. https://doi.org/10.12816/0026023
32. Horobet, A., Radulescu, M., Belascu, L., & Dita, S. M. (2021). Determinants of Bank Profitability in CEE Countries: Evidence from GMM Panel Data Estimates. Journal of Risk and Financial Management, 14(7), 307. https://doi.org/10.3390/jrfm14070307
33. Ishioro, B. O. (2023). The Long-run Macroeconomic Determinants of Banks' Performance in Nigeria. KIU Journal of Social Sciences(4), 25-37%V 28. https://ijhumas.com/ojs/index.php/kiujoss/article/view/1538
34. Islam, H., Johora, F., Abbasy, A. A., Rana, M., & Antoine, N. (2021). The perceived impact of COVID-19 pandemic on healthcare cost in Bangladesh. Journal of Global Business Insights, 6(2), 172-185. https://doi.org/10.5038/2640-6489.6.2.1173
35. Işık, C., Aydın, E., Dogru, T., Rehman, A., Alvarado, R., Ahmad, M., & Irfan, M. (2021). The nexus between team culture, innovative work behaviour and tacit knowledge sharing: Theory and evidence. Sustainability, 13(8), 4333. https://doi.org/10.3390/su13084333
36. Işık, C., Ongan, S., & Islam, H. (2024a). A new pathway to sustainability: Integrating economic dimension (ECON) into ESG factors as (ECON-ESG) and aligned with sustainable development goals (SDGs). Journal of Ekonomi, 34–39. https://doi.org/10.58251/ekonomi.1450860
37. Işık, C., Ongan, S., Islam, H., Jabeen, G., & Pinzon, S. (2024b). Is economic growth in East Asia pacific and South Asia ESG factors based and aligned growth? Sustainable Development. https://doi.org/10.1002/sd.2910
38. Işık, C., Ongan, S., Islam, H., Pinzon, S., & Jabeen, G. (2024c). Navigating sustainability: Unveiling the interconnected dynamics of ESG factors and SDGs in BRICS‐11. Sustainable Development. https://doi.org/10.1002/sd.2977
39. Işık, C., Bulut, U., Ongan, S., Islam, H., & Irfan, M. (2024d). Exploring how economic growth, renewable energy, internet usage, and mineral rents influence CO2 emissions: A panel quantile regression analysis for 27 OECD countries. Resources Policy, 92, 105025. https://doi.org/10.1016/j.resourpol.2024.105025
40. Işık, C., Ongan, S., Islam, H., Sharif, A., Balsalobre-Lorente, D. (2024e). Evaluating the effects of ECON-ESG on load capacity factor in G7 countries. Journal of Environmental Management. https://doi.org/10.1016/j.jenvman.2024.121177.
41. Işık, C., Ongan, S., Ozdemir, D., Yan, J., & Demir, O. (2024f). The sustainable development goals: Theory and a holistic evidence from the USA. Gondwana Research, 1-11. https://doi.org/10.1016/j.gr.2024.04.014
42. Islam, H., Johora, F., Abbasy, A., Rana, M., & Antoine, N. (2021). The perceived impact of COVID-19 pandemic on healthcare cost in Bangladesh. Journal of Global Business Insights, 6(2), 172–185. https://doi.org/10.5038/2640-6489.6.2.1173
43. Islam, H., Madavarapu, J. B., Sarker, N. K., & Rahman, A. (2022). The Effects of Cyber Threats and Technical Problems on Customer’s Attitude Towards E-Banking Services. Oblik I Finansi, (2(96)), 58–67. https://doi.org/10.33146/2307-9878-2022-2(96)-58-67
44. Islam, H., Rahman, J., Tanchangya, T., & Islam, M. A. (2023). Impact of firms’ size, leverage, and net profit margin on firms’ profitability in the manufacturing sector of Bangladesh: An empirical analysis using GMM estimation. Journal of Ekonomi, 5(1), 1–9. https://doi.org/10.58251/ekonomi.1275742
45. Islam, H., Rana, M., Saha, S., Khatun, T., Ritu, M. R., & Islam, M. R. (2023). Factors influencing the adoption of cryptocurrency in Bangladesh: an investigation using the technology acceptance model (TAM). Technological Sustainability, 2(4), 423–443.
46. Islam, H., Rana, M., Sarker, N. K., & Siddique, M. A. B. (2020). Does Bangladesh Need to be Established Derivatives Markets? Journal of Economics and Business, 3(2). https://doi.org/10.31014/aior.1992.03.02.226
47. Islam, H., Soumia, L., Rana, M., Madavarapu, J. B., & Saha, S. (2024). Nexus between perception, purpose of use, technical challenges and satisfaction for mobile financial services: theory and empirical evidence from Bangladesh. Technological Sustainability. https://doi.org/10.1108/techs-10-2023-0040
48. Jo, C., Kim, D. H., & Lee, J. W. (2023). Forecasting unemployment and employment: A system dynamics approach. Technological Forecasting and Social Change, 194, 122715. https://doi.org/10.1016/j.techfore.2023.122715
49. Kanwal, S., & Nadeem, M. (2013). The impact of macroeconomic variables on the profitability of listed commercial banks in Pakistan. European journal of business and social sciences, 2(9), 186-201. https://doi.org/10.12691/jfe-7-2-2
50. Keo, V. (2020). Impact of bank-specific and macroeconomic determinants on financial performance in commercial banks – case study in Thailand and Vietnam. people: International Journal of Social Sciences, 6(2), 514-534. https://doi.org/10.20319/pijss.2020.62.514534
51. Khrawish, H. A. (2011). Determinants of commercial banks performance: Evidence from Jordan. International Research Journal of Finance and Economics, 81(1), 148-159.
52. Kiganda, E. O. (2014). Effect of macroeconomic factors on commercial banks profitability in Kenya: Case of equity bank limited. Journal of Economics and Sustainable development, 5(2), 46-56.
53. Kirimi, P. N., Kariuki, S. N., & Ocharo, K. N. (2020). Mediation effect of macro-economic factors on the relationship between banks’ financial soundness and financial performance. https://doi.org/10.5923/j.ijfa.20200905.01
54. Klein, N. (2013). Non-performing loans in CESEE: Determinants and impact on macroeconomic performance. International Monetary Fund.
55. Kosmidou, K., Pasiouras, F., Zopounidis, C., & Doumpos, M. (2006). A multivariate analysis of the financial characteristics of foreign and domestic banks in the UK. Omega, 34(2), 189-195. https://doi.org/10.1016/j.omega.2004.10.002
56. Kosmidou, K., Tanna, S., & Pasiouras, F. (2005). Determinants of profitability of domestic UK commercial banks: panel evidence from the period 1995-2002. Money Macro and Finance (MMF) Research Group Conference,
57. Long, H., Chang, C.-P., Jegajeevan, S., & Tang, K. (2022). Can Central Bank Mitigate the Effects of the COVID-19 Pandemic on the Macroeconomy? Emerging Markets Finance and Trade, 58(9), 2652-2669. https://doi.org/10.1080/1540496X.2021.2007880
58. Mahmood, M. (2019, 28 April). The current state of the banking industry in Bangladesh. The Financial Express. https://thefinancialexpress.com.bd/views/views/the-current-state-of-the-banking-industry-in-bangladesh-1556380055
59. Mamun, M. A. A., Islam, H., & Sarker, N. K. (2022). Affiliation between Capital Adequacy and Performance of Banks in Bangladesh. Journal of Business Studies, 03(01), 155–168. https://doi.org/10.58753/jbspust.3.1.2022.10
60. Molyneux, P., & Thornton, J. (1992). Determinants of European bank profitability: A note. Journal of banking & Finance, 16(6), 1173-1178. https://doi.org/10.1016/0378-4266(92)90065-8
61. Muda, M., Shaharuddin, A., & Embaya, A. (2013). Comparative analysis of profitability determinants of domestic and foreign Islamic banks in Malaysia. International Journal of Economics and Financial Issues, 3(3), 559-569.
62. Naruševičius, L. (2018). Bank profitability and macroeconomy: evidence from Lithuania. Technological and economic development of economy, 24(2), 383–405-383–405. https://doi.org/10.3846/20294913.2016.1213192
63. Neupane, B. P. (2020). Profitability determinants of Nepalese commercial banks. PressAcademia procedia, 12(1), 40-45. https://doi.org/10.17261/Pressacademia.2020.1345
64. Ongore, V. O., & Kusa, G. B. (2013). Determinants of financial performance of commercial banks in Kenya. International Journal of Economics and Financial Issues, 3(1), 237-252.
65. Otuori, O. H. (2013). Influence of exchange rate determinants on the performance of commercial banks in Kenya. European Journal of management sciences and economics, 1(2), 86-98.
66. Ozatac, N., Taspinar, N., El Rifai, O., & Eren, B. (2018). The Relationship Between Government Expenditure on Education and Economic Growth: The Case of France. In D. Procházka, The Impact of Globalization on International Finance and Accounting Cham.
67. Pasiouras, F., & Kosmidou, K. (2007). Factors influencing the profitability of domestic and foreign commercial banks in the European Union. Research in international business and finance, 21(2), 222-237. https://doi.org/10.1016/j.ribaf.2006.03.007
68. Petria, N., Capraru, B., & Ihnatov, I. (2015). Determinants of Banks’ Profitability: Evidence from EU 27 Banking Systems. Procedia Economics and Finance, 20, 518-524. https://doi.org/10.1016/S2212-5671(15)00104-5
69. Rana, M., AL Mamun, A., Hossain, M. K., & Islam, H. (2023). Factors Influencing the Monetary Policy. Journal of Ekonomi. https://doi.org/10.58251/ekonomi.1374599
70. Rana, M., & Al Mamun, A. (2024). Monetary policy dynamics and economic performance in Bangladesh: An arima model approach. Journal of Economics and Research, 5(1), 47–62. https://doi.org/10.53280/jer.1431607
71. Rahman, K. (2019). Performance analysis of selective private commercial banks of Bangladesh through CAMEL rating. Brac University. Bangladesh: Brac University. Retrieved from https://dspace.bracu.ac.bd/xmlui/handle/10361/12830
72. Rao, K. R. M., & Lakew, T. B. (2012). Determinants of profitability of commercial banks in a developing country: Evidence from Ethiopia. International journal of accounting and financial management research, 2(3), 1-20.
73. Rengasamy, D. (2012). The need to evaluate bank performance. Retrieved 16 July from https://www.theborneopost.com/2012/11/06/the-need-to-evaluate-bank-performance/
74. Saeed, M. S. (2014). Bank-related, industry-related and macroeconomic factors affecting bank profitability: A case of the United Kingdom. Research journal of finance and accounting, 5(2), 42-50.
75. Sahoo, M., & Sahoo, J. (2019). The relationship between unemployment and some macroeconomic variables: Empirical evidence from India. Theoretical & Applied Economics, 26(1).
76. Salas, V., & Saurina, J. (2002). Credit Risk in Two Institutional Regimes: Spanish Commercial and Savings Banks. Journal of Financial Services Research, 22(3), 203-224. https://doi.org/10.1023/A:1019781109676
77. Samad, A., & Hassan, M. K. (2006). The performance of Malaysian Islamic bank during 1984–1997: An exploratory study. International journal of Islamic financial services, 1(3). https://doi.org/10.2139/ssrn.3263331
78. Sastrosuwito, S., & Suzuki, Y. (2012). The determinants of post-crisis Indonesian banking system profitability. Economics and finance review, 1(11), 48-57.
79. Simiyu, C. N., & Ngile, L. (2015). Effect of macroeconomic variables on profitability of commercial banks listed in the Nairobi securities exchange. International Journal of Economics, Commerce and Management, 3(4), 1-16.
80. Sufian, F., & Chong, R. R. (2008). Determinants of bank profitability in a developing economy: Empirical evidence from the Philippines. Asian Academy of Management Journal of Accounting & Finance, 4(2).
81. Sufian, F., & Habibullah, M. S. (2009). Bank specific and macroeconomic determinants of bank profitability: Empirical evidence from the China banking sector. Frontiers of Economics in China, 4(2), 274-291. https://doi.org/10.1007/s11459-009-0016-1
82. Vejzagic, M., & Zarafat, H. (2014). An analysis of macroeconomic determinants of commercial banks profitability in Malaysia for the period 1995-2011. Journal of Asian Economy and Financial Review, 4(1).
83. Wooldridge, J. M. (2010). Econometric analysis of cross section and panel data. MIT press.
84. Zhang, X., & Daly, K. (2014). The Impact of Bank-Specific and Macroeconomic Factors on China’s Bank Performance ok. The Chinese Economy, 47(5-6), 5-28. https://doi.org/10.2753/CES1097-1475470501.2014.11082913