The Effect of Credit Risk on the Banking Profitability: A Case on Bangladesh

1
Abu Hanifa Md. Noman
Abu Hanifa Md. Noman
2
Sajeda Pervin
Sajeda Pervin
3
Mustofa Manir Chowdhury
Mustofa Manir Chowdhury
4
Hasanul Banna
Hasanul Banna
1 International Islamic University Chittagong, Bangladesh

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The study aims to find the effect of credit risk on profitability of the banking sectors of Bangladesh. The study uses an unbalanced panel data and 172 observations from 18 private commercial banks from 2003 to 2013. The study uses NPLGL, LLRGL, LLRNPL and CAR as credit risk indicators and ROAA and ROAE and NIM as profitability indicators. Using OLS random effect model, GLS and system GMM the study finds a robust negative and significant effect of NPLGL, LLRGL on all profitability indicators. The analysis also finds a negative and significant effect of CAR on ROAE. As an additional analysis, the results reveal that the effect of the implementation of Basel II is significantly positive on NIM but significantly negative on ROAE. The analysis reveals some significant policy implications for increasing profitability and protecting banks from crisis.

37 Cites in Articles

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Funding

No external funding was declared for this work.

Conflict of Interest

The authors declare no conflict of interest.

Ethical Approval

No ethics committee approval was required for this article type.

Data Availability

Not applicable for this article.

Abu Hanifa Md. Noman. 2015. \u201cThe Effect of Credit Risk on the Banking Profitability: A Case on Bangladesh\u201d. Global Journal of Management and Business Research - C: Finance GJMBR-C Volume 15 (GJMBR Volume 15 Issue C3): .

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GJMBR Volume 15 Issue C3
Pg. 41- 48
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Crossref Journal DOI 10.17406/GJMBR

Print ISSN 0975-5853

e-ISSN 2249-4588

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April 22, 2015

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The study aims to find the effect of credit risk on profitability of the banking sectors of Bangladesh. The study uses an unbalanced panel data and 172 observations from 18 private commercial banks from 2003 to 2013. The study uses NPLGL, LLRGL, LLRNPL and CAR as credit risk indicators and ROAA and ROAE and NIM as profitability indicators. Using OLS random effect model, GLS and system GMM the study finds a robust negative and significant effect of NPLGL, LLRGL on all profitability indicators. The analysis also finds a negative and significant effect of CAR on ROAE. As an additional analysis, the results reveal that the effect of the implementation of Basel II is significantly positive on NIM but significantly negative on ROAE. The analysis reveals some significant policy implications for increasing profitability and protecting banks from crisis.

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The Effect of Credit Risk on the Banking Profitability: A Case on Bangladesh

Abu Hanifa Md. Noman
Abu Hanifa Md. Noman International Islamic University Chittagong, Bangladesh
Sajeda Pervin
Sajeda Pervin
Mustofa Manir Chowdhury
Mustofa Manir Chowdhury
Hasanul Banna
Hasanul Banna

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