8. Conclusions
This study evaluates the impact of financial reform policies on the financial performance of 12 major commercial banks in Bangladesh over the period 1983- 2012. The study also explores how bank-specific characteristics, industry-related and macroeconomic indicators affect the profitability of the sample banks. The findings indicate that profitability of the sample banks has not improved after the financial reform except for NIM in the post-reform period. The results also show that large banks are more profitable. Small banks can merge and enhance asset size as suggested by Berger and Humphrey (1997). The results also demonstrate that greater market power (i.e., higher concentration) leads to higher bank profit. The robustness check of the empirical results shows only a few changes in statistical significance of the estimated coefficients.
The findings also reveal that GDP growth effect does not pass through to higher banking profitability, while CPI inflation increases the profitability of the sample banks. No significant impact is observed for corporate governance variables, political director and independent director in the bank board, on profitability measures, while greater capital strength and higher loan to assets ratio lead to higher profitability. Hence, regulators should insure that banks remain highly capitalized and increase their loan portfolios (without increasing non-performing loans) to ensure a viable banking sector in Bangladesh.
