Economics and Business
Quarterly Reviews
ISSN 2775-9237 (Online)
Published: 24 February 2024
Effect of Liquidity Management on Profitability: A Comparative Analysis between Public Sector and DSE Listed Private Sector Banks in Bangladesh
Mithun Chokroborty, Al Hasan
Bangladesh Academy for Securities Markets
Download Full-Text Pdf
10.31014/aior.1992.07.01.561
Pages: 85-101
Keywords: Liquidity Management, Profitability, Public Sector Banks, Dhaka Stock Exchange (DSE) listed Private Sector Banks, Return on Assets and Return on Equity
Abstract
This study is all about the effect of liquidity management on profitability of public and DSE listed private sector banks and compares the outcomes regarding liquidity management. In this study, is taken 18 banks of Bangladesh in total as sample (9 banks from public sector where 6 banks are state owned and 3 banks are specialized and 9 banks from private sector which are listed in DSE) and also taken five years data from 2013 to 2017 for assessing the impact of liquidity management on profitability. As there is always a trade-off between liquidity and profitability, in this study find out either this trade-off is exiting in the each of banking sector or not and also assess the efficiency of liquidity management of the banks. The liquidity condition of the banking industry of Bangladesh is also highlighted in this study where it is seen that banking industry is facing some problem regarding liquidity from the 2018. The analysis part of the study is assessed the condition of the liquidity management before 2018 and found out the relationship between liquidity and profitability of public sector and private sector banks. To assess the relationship is used some financial ratios like: liquidity management is measured by current ratio, cash-deposit ratio, credit-deposit ratio and investment-deposit ratio and profitability is measured by return on assets and return on equity. By using the descriptive statistics, find out the average, standard deviation, maximum and minimum value of each ratios. The Pearson Correlation is been used to assessed the correlation between each variable with others. The relationship between liquidity and profitability is evaluated through regression model where first consider the return on assets as dependent variable and all liquidity ratios as independent variables. Again here is assessed the relationship by taking return on equity as dependent variable. After developing the model based on regression for public sector and the DSE listed private sector banks individually, the outcomes are compared to find out the effect of liquidity management on profitability and find out the efficiency in liquidity management. It is found that the DSE listed private sector banks are more efficient in liquidity management than public sector banks in Bangladesh. Because the DSE listed private sector banks are managed their liquidity function so well that it is not affecting the profitability of DSE listed private sector banks. On the other hand, the public sector banks need to improve their performance regarding liquidity management so that they can manage liquidity and profitability at the same time and remain competitive with DSE listed private sector banks in Bangladesh.
References
Nicola Cetorelli and Linda S. Goldberge (2012). Liquidity management of U.S. global banks: Internal capital markets in the great recession- Journal of International Economics- Volume 88, Issue 2, November 2012, Pages 299-311
Oluwatobi Fagboyo, Anjola Adeniran and Abayomi Adedeji (2018). Impact of Liquidity Management on Profitability in Nigeria’s Banking Sector- Conference: ICGET 2018
At: Baze university, Abuja, Nigeria
Birajit Mohanty and Shweta Mehrotra (2018). The effect of liquidity management on profitability in Indian banking sector- The IUP journal of bank management: IJBM. - Hyderabad : IUP Publ., ISSN 2583-5866, ZDB-ID 2615464-X. - Vol. 17.2018, 1, p. 7-20Bordeleau and Graham (2010).
The impact of liquidity on bank profitability- Bank of Canada Working Paper 2010-38 December 2010
Ali Sulieman Alshantti (2014): The Effect of the Liquidity Management on Profitability in the Jordanian Commercial Banks- International Journal of Business and Management; Vol. 10, No. 1; 2015 ISSN 1833-3850 E-ISSN 1833-8119
Muhammad Shaukat, Mustabsar Awais and Aisha Khursheed (2016): Impact of Liquidity on Profitability: A Comprehensive Case of Pakistan’s Private Banking Sector- International Journal of Economics and Finance; Vol. 8, No. 3; 2016 ISSN 1916-971X E-ISSN 1916-9728
Victor Curtis Lartey, Samuel Antwi and Eric Kofi Boadi (2013): The Relationship between Liquidity and Profitability of Listed Banks in Ghana- International Journal of Business and Social Science- Vol. 4 No. 3; March 2013
Sunny Obilor Ibe (2013): The Impact of Liquidity Management on the Profitability of Banks in Nigeri- Journal of Finance and Bank Management 1(1); June 2013 pp. 37-48
Dr. Munther Al Nimer, Dr. Lina Warrad and Dr. Rania Al Omari. (2015): The Impact of Liquidity on Jordanian Banks Profitability through Return on Assets -European Journal of Business and Management www.iiste.org-ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)-Vol.7, No.7, 2015
Daily Star Newspaper: https://www.thedailystar.net/business/news/liquidity-crunch-intensifying-1742770
Dhaka Tribune Newspaper: Source: https://archive.bangladesh-post.net/banks-facing-liquidity-crisis/
Sonali Bank Limited- Annual Report (2013-17)
Janata Bank Limited- Annual Report (2013-17)
Rupali Bank Limited- Annual Report (2013-17)
Agrani Bank Limited- Annual Report (2013-17)
BASIC Bank Limited- Annual Report (2013-17)
Bangladesh Development Bank Limited (BDBL) - Annual Report (2013-17)
Bangladesh Krishi Bank (BKB)- Annual Report (2013-17)
Rajshahi Krishi Unnayan Bank (RAKUB) - Annual Report (2013-17)
Probashi Kallyan Bank (PKB) - Annual Report (2013-17)
AB Bank Limited- Annual Report (2013-17)
Eastern Bank Limited- Annual Report (2013-17)
Trust Bank Limited- Annual Report (2013-17)
Dhaka Bank Limited- Annual Report (2013-17)
Prime Bank Limited- Annual Report (2013-17)
City Bank Limited- Annual Report (2013-17)
Brac Bank Limited- Annual Report (2013-17)
Pubali Bank Limited- Annual Report (2013-17)
Standard Bank Limited- Annual Report (2013-17)