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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

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.



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