The Impact of Macroeconomic Variables on Bank Profitability: Empirical Evidence from Selected Private Commercial Banks in Bangladesh
Netai Kumar Saha
*
Department of Accounting and Information Systems, Jatiya Kabi Kazi Nazrul Islam University, Trishal, Mymensingh-2224, Bangladesh.
Md. Shemul Miah
Department of Accounting and Information Systems, Jatiya Kabi Kazi Nazrul Islam University, Trishal, Mymensingh-2224, Bangladesh.
*Author to whom correspondence should be addressed.
Abstract
Purpose: The profitability of banks is closely tied to macroeconomic dynamics, and this linkage is particularly critical in emerging economies like Bangladesh where financial institutions face persistent volatility. While prior studies have examined macroeconomic influences on banking performance, limited research has focused specifically on private commercial banks, which dominate the Bangladeshi banking sector. This study addresses this gap by investigating the effects of exchange rates, interest rates, and inflation on their financial performance.
Design/Methodology/Approach: Secondary data were collected from the World Bank database and the financial statements of 20 Bangladeshi private commercial banks. A descriptive research design was employed, while correlation analysis was used to explore associations between return on assets (ROA), return on equity (ROE), and selected macroeconomic variables. A multiple linear regression model further assessed the random effects of the independent variables on bank performance.
Findings: The results reveal a strong negative relationship between the foreign exchange rate and bank profitability, while inflation demonstrates a positive impact. Moreover, interest rates were found to positively influence ROA but negatively affect ROE. The model’s coefficient of determination (R²) of 0.473 suggests that approximately 47.3% of the variation in financial performance among Bangladeshi private commercial banks can be attributed to the selected macroeconomic variables, highlighting a moderate explanatory power and the relevance of these factors in shaping bank profitability.
Research Implications: The findings suggest that banks should strengthen risk management practices concerning foreign exchange exposure and that government initiatives supporting export-oriented policies can enhance sectoral stability and performance.
Originality/Value: This study adds to the empirical literature on the macroeconomic determinants of bank profitability in Bangladesh, with a specific focus on private commercial banks.
Future Research: Future studies may extend the analysis by incorporating additional macroeconomic and non-economic factors, examining longer time horizons, or comparing results across different types of banks to provide broader insights.
Keywords: Commercial Banks, exchange rate, interest rate, inflation, return on assets, return on equity