RELATIVE STANDING OF ROE AND ROCE IN EFFECTIVE LIQUIDITY MANAGEMENT: EVIDENCE FROM BANGLADESHI COMMERCIAL BANKS
Keywords:
Bangladesh, Commercial Bank, Effective Liquidity Management, ROE, ROCE.
Abstract
This study has been designed for examining the effectiveness of liquidity management through the relative standing of ROE and ROCE of Nationalized Commercial Banks in Bangladesh for the duration of 2008–2018. Six NCBs are selected purposively as sample. The study relies on a balanced panel data set of 66 observations which are gathered from the annual reports of banks and analyzed by random effects regression model. However, the research only examined a few variables. The empirical results reveal that the selected NCBs have been portraying better standing in case of ROE than ROCE in effective liquidity management. The value of R2 of ROE is 75.25%; it signifies that the explanatory measures could clarify 75.25% of the variations in ROE. Among the liquidity measures, Assets/Shareholders Equity has highly significant negative effect; Tier 1 Capital/Risk Weighted Assets has highly significant positive effect; Deposits/Assets have some significant positive and Bank Size in terms of Deposits has some significant negative effect on ROE of the selected NCBs.
JEL Classification Codes: E44, G14, G21, O16.
References
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Mwangi, M., Muturi, W., & Ombuki, C. (2015). The effects of Deposit to Asset ratio on the Financial Sustainability of Deposit taking Micro Finance Institutions in kenya. International Journal of Economics, Commerce and Management, 3(8).
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Nzotta, S. M. (1997). Money, Banking and Finance: Theory and Practice. Owerri.
Obida, S. S., & Owolabi, S. A. (2012). Liquidity Management and Corporate Profitability: Case Study of Selected Manufacturing Companies Listed on the Nigerian Stock Exchange. Business Management Dynamics, 2(2), 10-25.
Olarewaju, O. M., & Adeyemi, O. K. (2015). Causal Relationship between Liquidity and Profitability of Nigerian Deposit Money Banks. International Journal of Academic Research in Accounting, Finance and Management Sciences, 5(2).
Osborn, M., Fuertes, A., & Milne, A. (2012). Capital and Profitability in Banking: Evidence from US Banks.
Papa, V. (2012). Bank Earnings: Investors Should Pay Attention to Risk-Adjusted Performance. Market Integrity Insights, CFA Institute.
Rauch, C., Steffen, S., Hackethal, A., & Tyrell, M. (2010). Determinants of bank liquidity creation.
Raza, A., Farhan, M., & Akram, M. (2011). A comparison of financial performance in investment banking sector in Pakistan. International Journal of Business and Social Science, 2(9).
Repullo, T. M. (2003). Liquidity, risk taking and the lender of last resort, CEMFI, Madrid.
Siddique, M. (2004). Financial Sector Crisis in Japan: Impact of Non-performing loan on bank loan supply. Bank Parikrama: A journal of Banking and Finance, XXVIII & XXIX, pp: 35-47.
Sufian, F., & Chong, R. R. (2008). Determinants of bank profitability in a developing economy: Empirical evidence from Philippines, Asian Academy of Management Journal of Accounting and Finance, 4(2), 91-112.
Tabari, N., Ahmadi, M., & Emami, M. (2013). The Effect of Liquidity Risk on the Performance of Commercial Banks. International Research Journal of Applied and Basic Sciences, 4(6), 1624-1631.
Wilner, B. (2000). Competitive Conditions in European Banking. Journal of Banking and Finance, 18.
Wooldridge, J. M. (2002). Econometric Analysis of Cross Sectional and Panel Data. Cambridge, MA: MIT Press.
Abugamea, G. (2018). Determinants of Banking Sector Profitability: Empirical Evidence from Palestine. Retrieved from https://mpra.ub.uni-muenchen.de/89772/. MPRA Paper No. 89772, posted 30 Oct 2018 08:40 UTC
Adebayo, M., Adeyanju, D., & Olabode, S. (2011). Liquidity Management and Commercial Banks’ Profitability in Nigeria. Research Journal of Finance and Accounting, 2(7/8). Retrieved from http://www.iiste.org
Agbada, A. O., & Osuji, C.C. (2013). The Efficacy of Liquidity Management and Banking Performance in Nigeria. Review of Management and Business Research, 2(1).
Ahmed, E., Rahman, Z., & Ahmed, R. I. (2006). Comperative analysis of loan recovery among nationalized, private and islamic commercial banks of Bangladesh. BRAC University Journal, 3(1), 35-52.
Alshatti, A. S. (2015). The effect of the Liquidity Management on the Profitability in the Jordian Commercial Banks. International Journal of Business and Management, 10(1).
Arif, A. & Anees, A. N. (2012). Liquidity Risk and Performance of Banking System. Journal of Financial Regulation and Compliance, 20(2), 182–195, http://dx.doi.org/10.1108/13581981211218342
Aspachs, O., Nier, E. W., & Tiesset, M. (2005). Liquidity, banking regulation and the macroeconomy: evidence on bank liquidity holdings from a panel of UK-resident banks, Bank of England, Working Paper, 2005.
AssafNeto, A. (2003). Finanças Corporativas e Valor. São Paulo: Atlas.
Basel Committee on Banking Supervision. (2008). Principles for Sound Liquidity management and Supervision, Basel, Switzerland: Bank for International Settlement.
Bassey, G. E. (2015). Bank Profitability and Liquidity Management: A case Study od Selected Nigerian Deposit Money Banks. International Journal of Economics, Commerce and Management, 3(4).
Bernanke, B. S. (2008). Liquidity Provision by the Federal Reserve, Risk Transfer Mechanisms and Financial Stability Workshop, Basel, Switzerland, on May 29, 2008.
Chandra, P. (2001). Financial Management. 7th edition, McGraw-Hill, New York, USA.
Central Bank of Barbados. (2008). Liquidity Risk Management Guideline. Bank Supervision Department, Central Bank of Barbados, Bridgetown.
Dodds, J. C. (1982). The Term Structure of Interest Rates: a Survey of the Theories and Empirical Evidence, Managerial Finance, 8(2), 22-31.
Datta, P. C., Ghosh, B. K., & Tuhin, M. H. (2011). Financial Performance in Banking Sector in Bangladesh: A Comparative Study of Some Selected Private Commercial Banks. Department of Banking Faculty of Business Studies University of Dhaka. Journal of Banking & Financial Services, 5(1), July 2011, 129-138.
Emmanuel, N. R. (1997). Commercial Banking in an Era of Deregulation. 3rd Edition, Greenwood Publishing Group.
Flannery, M. J., & Rangan, P. (2008). What Caused the Bank Capital Build-up of the 1990s? Review of Finance, 12.
Goddard, J., Molyneux, P., & Wilson, J.O.S. (2004). Dynamics of Growth and Profitability in Banking. Journal of Money, Credit and Banking, 36, 1069-1090.
Gujarati, D.N. (1995). Basic Econometrics. 3rd edition, McGraw-Hill,New York.
Gujarati, D.N., & Sangeetha. (2008). Basic Econometrics. 4th edition, The Tata McGraw-Hill Companies, India.
Gup, B. E., & Kolari, J. W. (2004). Commercial Banking: The Management of Risk. 3rd Edition, Wiley publication, New York, USA.
Hausman, J. A. (1978). Specification Tests in Econometrics. Econometrica: Journal of the Econometric Society, 46, 1251–1271.
Hirigoyen, G. (1985). Rentabilité et solvabilité. Direction et Gestion, 3, 13-26.
Hossain, M. J. (2000). A Study on the Performance of Public and Private Sector Commercial Banks in Bangladesh, an unpublished Ph.D Thesis, Institute of Bangladesh Studies, Rajshahi University, pp: IX-X.
Ramadan, I. Z., Kilani, Q. A., & Kaddumi, T. A. (2011). DETERMINANTS OF BANK PROFITABILITY: EVIDANCE FROM JORDAN. International Journal of Academic Research, 3(4).
Jahangir, N., Shill, S., & Haque, M. A. J. (2007). Examination of profitability in the context of Bangladesh banking industry. ABAC Journal, 27(2), 36-46.
Jenkinson, N. (2008). Strengthening regimes for controlling liquidity risk. Euro Money Conference on Liquidity and Funding Risk Management. Bank of England, London, p. 9.
Jose, M. L., Lancaste, C., & Stevens, J. L. (1996). Corporate returns and cash conversion cycles. Journal of Economics and Finance, 20(1).
Kurawa, J. M., & Abubakar, A. (2014). An evaluation of the impact of liquidity on the profitability of Nigerian banks. J Manag, 2(7), 1-7.
Kennedy, P. (2008). A Guide To Econometrics. 6th edition, Wiley-Blackwell, New Jersey, USA.
Koch, T. W. (1992). Bank Management. 2nd Edition, The Dryden Press, N.Y., pp.483-485.
Lartey, V., Antwi, S., & Boadi, E. (2013). The Relationship between Liquidity and Profitability of Listed Banks in Ghana. International Journal of Business and Social Science, 4(3), 48–56. Retrieved from http://ijbssnet.com/journals
Lucy, O.U., Nnenna, C.V., & Nnenna, O. V. (2018). Effect of Liquidity on Financial Performance on Deposit Money Banks in Nigeria. Journal of Economics and Sustainable Development, 9(4), 19-28.
Mwangi, M., Muturi, W., & Ombuki, C. (2015). The effects of Deposit to Asset ratio on the Financial Sustainability of Deposit taking Micro Finance Institutions in kenya. International Journal of Economics, Commerce and Management, 3(8).
Nwankwo, U. (1991). Economic Agenda for Nigeria. Centralist Production Ltd., Lagos, Nigeria.
Nzotta, S. M. (1997). Money, Banking and Finance: Theory and Practice. Owerri.
Obida, S. S., & Owolabi, S. A. (2012). Liquidity Management and Corporate Profitability: Case Study of Selected Manufacturing Companies Listed on the Nigerian Stock Exchange. Business Management Dynamics, 2(2), 10-25.
Olarewaju, O. M., & Adeyemi, O. K. (2015). Causal Relationship between Liquidity and Profitability of Nigerian Deposit Money Banks. International Journal of Academic Research in Accounting, Finance and Management Sciences, 5(2).
Osborn, M., Fuertes, A., & Milne, A. (2012). Capital and Profitability in Banking: Evidence from US Banks.
Papa, V. (2012). Bank Earnings: Investors Should Pay Attention to Risk-Adjusted Performance. Market Integrity Insights, CFA Institute.
Rauch, C., Steffen, S., Hackethal, A., & Tyrell, M. (2010). Determinants of bank liquidity creation.
Raza, A., Farhan, M., & Akram, M. (2011). A comparison of financial performance in investment banking sector in Pakistan. International Journal of Business and Social Science, 2(9).
Repullo, T. M. (2003). Liquidity, risk taking and the lender of last resort, CEMFI, Madrid.
Siddique, M. (2004). Financial Sector Crisis in Japan: Impact of Non-performing loan on bank loan supply. Bank Parikrama: A journal of Banking and Finance, XXVIII & XXIX, pp: 35-47.
Sufian, F., & Chong, R. R. (2008). Determinants of bank profitability in a developing economy: Empirical evidence from Philippines, Asian Academy of Management Journal of Accounting and Finance, 4(2), 91-112.
Tabari, N., Ahmadi, M., & Emami, M. (2013). The Effect of Liquidity Risk on the Performance of Commercial Banks. International Research Journal of Applied and Basic Sciences, 4(6), 1624-1631.
Wilner, B. (2000). Competitive Conditions in European Banking. Journal of Banking and Finance, 18.
Wooldridge, J. M. (2002). Econometric Analysis of Cross Sectional and Panel Data. Cambridge, MA: MIT Press.
Published
2021-11-27
How to Cite
Chaudhury, N. J. (2021). RELATIVE STANDING OF ROE AND ROCE IN EFFECTIVE LIQUIDITY MANAGEMENT: EVIDENCE FROM BANGLADESHI COMMERCIAL BANKS. American Finance & Banking Review, 6(1), 26-41. https://doi.org/10.46281/amfbr.v6i1.1459
Section
Research Paper/Theoretical Paper/Review Paper/Short Communication Paper
Copyright (c) 2021 Nazneen Jahan Chaudhury
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