TYPE Original Research

PUBLISHED 10 November 2022

DOI 10.3389/fpsyg.2022.1000412

Profitability determining factors

OPEN ACCESS of banking sector: Panel data
analysis of commercial banks in
EDITED BY
Nadeem Iqbal,
Air University, Pakistan

REVIEWED BY
Nexhat Kryeziu,
South Asian countries
University of Pristina, Albania
Mohamed R. Abonazel,
Cairo University, Egypt Deli Yuan1 , Md. Abu Issa Gazi1*, Iman Harymawan2*,
*CORRESPONDENCE Bablu Kumar Dhar3 and Abu Ishaque Hossain4
Md. Abu Issa Gazi
[Link]@[Link] 1
School of Management, Jiujiang University, Jiujiang, China, 2 Department of Accounting, Faculty of
Iman Harymawan Economic and Business, Universitas Airlangga, Surabaya, Indonesia, 3 Mahidol University
[Link]@[Link] International College, Mahidol University, Nakhon Pathom, Thailand, 4 Department of Business
Administration, The International University of Scholars, Dhaka, Bangladesh
SPECIALTY SECTION
This article was submitted to
Organizational Psychology,
a section of the journal Aim of the article: The main purpose of this article was to investigate the
Frontiers in Psychology
impact of the determinants of profitability on the commercial banks in Asian
RECEIVED 22 July 2022
countries. An Asian country like Bangladesh and India was selected as the
ACCEPTED 26 September 2022
PUBLISHED 10 November 2022 research field. The present study also pursues to examine the impact of specific
CITATION factors and macroeconomic factors on the profitability in the Bangladeshi and
Yuan D, Gazi MAI, Harymawan I, Indian private commercial banking sectors.
Dhar BK and Hossain AI (2022)
Profitability determining factors of Methods applied and analysis tools: The data were retrieved from the
banking sector: Panel data analysis of Annual Reports of Indian and Bangladeshi private commercial banks covering
commercial banks in South Asian
countries. Front. Psychol. 13:1000412. the period of 2010–2021. As sample, 40 private commercial banks were
doi: 10.3389/fpsyg.2022.1000412 considered randomly, of which 20 were from India and 20 were from
COPYRIGHT Bangladesh. The panel data research methodology was used as an estimation
© 2022 Yuan, Gazi, Harymawan, Dhar technique to analyze the data. Also, the ordinary least squares (OLS) regression
and Hossain. This is an open-access
article distributed under the terms of model was used to scrutinize data. To check whether the models were
the Creative Commons Attribution appropriate, the Breusch–Pagan Lagrange Multiplier (LM) Test was employed.
License (CC BY). The use, distribution
Banks’ specific factors and microeconomic factors showed almost the same
or reproduction in other forums is
permitted, provided the original variations for both Bangladesh’s and India’s private banks. All models and tests
author(s) and the copyright owner(s) were evaluated using E-views econometric software.
are credited and that the original
publication in this journal is cited, in The major findings: The present study finds that the Return on Asset (ROA)
accordance with accepted academic from the banks’ specific variables, strength of the Bank size (BS), and Debt
practice. No use, distribution or
reproduction is permitted which does to Asset Ratio (DAR) are found to be positive and significant. For banks, the
not comply with these terms. Deposit to Asset Ratio (DTAR) and the Loan to Deposit Ratio (LDR) are found to
be negative and significant. The Equity to Asset Ratio (EAR) and Debt to Equity
Ratio (DER) do not have any positive/negative impact.
Contribution, originality, and implications: As macroeconomic variables,
the inflation rate (IR) and the GDP growth rate (GDPGR) are measured and
found to be positive and significant for ROA. As macroeconomic variables, the
Inflation Rate (IR) and the GDP Growth Rate (GDPGR) are found to be positive
and significant in the case of ROA. The concerned authorities responsible for
regulating the financial performance of the banking sector can use the results
of this study to take various fruitful decisions on bank profitability.

KEYWORDS

OLS model, commercial banks, profitability, panel data, ROA, ROE

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Introduction same, but Bangladesh is ahead in terms of some economies

(Moyo and Tursoy, 2020). The banking sector is one of the
The importance of the banking industry in ensuring main drivers of the economies of both Bangladesh and India
permanent, sustainable, and continuing economic growth (Gazi et al., 2021b). The political and economic conditions
cannot be overstated. In Bangladesh and India, the banking of South Asian countries, particularly Bangladesh and India,
system includes both private and public sector banks. Over the are completely apart from the fast-growing economies of the
decades, the banking industry has undergone major vicissitudes world countries (Uddin and Akhter, 2012). The impact of
for updating and coping with modern demand for organizing competition on bank profits can lead to policy intervention. As
and setting up more banks to cater to the growing needs of if more profits come from market power, it can negatively affect
the people. customers in terms of lower deposit rates, higher loan rates,
The banking sector, as a proliferating financial institution, and qualityless financial services (Yao et al., 2018); alternatively,
plays an active part in a country’s economic development (Babu, technical incompetence can also lead to less profit. There is
2018; Iskandar et al., 2019). Since the recession of 2008, both extensive competition among banks for which an appropriate
countries have relied heavily on the banking sector. Prior to policy response is required. Policymakers must strike a balance
the 2008 economic crisis, the improvement in macroeconomic between competition and management abilities. Another major
environment and the high level of economic growth were factor that might affect profits in both directions is the risk
supported by the private banking sector significantly (Andrieş factor (Rahaman et al., 2020b). From decade to decade, the
et al., 2016). In fact, the financial sector even provided a map banking sector has been continuing to play an essential role in
for the expansion and advancement of the world economy. the country’s growth, so it is critical to assess its performance
The stability and sustainability of the financial system became a (Lalarukh, 2008). For a financial organization, determining
national and international priority as a result of the globalization profitability is critical. Banks that want to be profitable should
and financial integration (Javaid, 2016). The stability of a nation’s have a good fund management, a lot of capital, and the ability
domestic financial system and its capacity to absorb volatility to take risks (Rahayuningsih et al., 2019). Liquidity, capital
and protect investors were the key factors in determining how structure, GDP, assets turnover, size, growth rate, tangibility, tax
the capital moved both domestically and internationally (Hafidh rate, interest rate, and uniqueness are all factors that have an
and Burhan, 2021). Commercial banks in Bangladesh needed impact on profitability (Trad et al., 2017).
to be more profit-oriented due to increased domestic and Previous studies on the profitability determining factors
international competition for a stable and adaptable financial of the banking sector focused on the United States or the
system (Sujud, 2020). According to Ali and Puah (2018), European area, with much less discussion on and insight
nations with a robust and lucrative banking sector were better into the banking industry in Asian economies (Soedarmono
able to withstand the financial crises, bounce back quickly, et al., 2013; Saif-Alyousfi, 2019; Chandra et al., 2020). The
and lessen the damage they caused to their economies. The present study was conducted to examine the profitability
2008 Global Financial Crises showed the effects of various affecting factors of both Indian and Bangladeshi commercial
macroeconomic actions on the banking industry’s policy choices banks. Ordinary least squares (OLS) regression was used to
and the outcomes of those decisions (Ullah et al., 2020). The measure the profits of the banking industry in a South Asian
problems in the banking system became even more severe as representative country like Bangladesh and India. In Bangladesh
a result of the declining gross domestic product (GDP) and and India, private, international, state-owned, and Islamic banks
rising inflation (Gazi et al., 2022). Profitability in any company collaborate. However, several studies have previously identified
or organization, especially banks, was influenced not only by those factors that have majorly influenced bank profitability.
the internal business environment, but also by the external However, just a few previous research works only have looked
environment in a variety of ways (Jahan, 2020). Because of the into the profitability of banks. As a result, the current study
direct and indirect links between the financial crisis and the aims to investigate the elements that influence the banking
world economies, there was an impact on every nation. industry’s profitability.
The banking industry’s major mission, among the several
financial sectors, has been to convert people’s savings into
productive investments in a country and thereby to raise the Literature review
living standards of the people of that country (Rahaman et al.,
2020a). Furthermore, after Independence, the banking sectors This section of the current study looked at a variety of related
in both Bangladesh and India have been performing both previously published literature that had studied in depth the
economic and social operations. As a result, the economies of factors that influence a bank’s profitability using a fixed effects
both countries have started to grow (Gazi et al., 2021a). The model and panel data approach. Dealing with the period from
socioeconomic situation of Bangladesh and India is almost the 2013 to 2017, Islam and Rana (2019) looked at those factors

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that affected a bank’s profitability in Bangladesh’s commercial bank profitability. They employed the panel data analysis and
banks. They used the same profit measures for all the three analyzed as many as 96 banks. Cetin (2019) studied G20
factors: return on asset (ROA), return on equity (ROE), and net countries for the period during 2013–2015 using an ordinary
interest margin (NIM). While earning variables and asset quality least squares (OLS) regression model and stated that there
have a substantial positive link with ROA, capital strength is inflation in developing countries and ROA has a positive
does not, according to the researchers. They also discovered relation. Uralov (2020) investigated the factors that influence
that earnings and capital strength have a substantial positive a bank’s profitability in Central European countries from 1996
relationship with ROE, with gross domestic product (GDP), to 2017 and discovered that the economic growth had a
interest rate, and inflation rate (IR) having no meaningful impact beneficial impact on the bank’s ROA. Mahmud et al. (2016)
on the bank profitability. Using the generalized method of investigated 15 Bangladeshi commercial banks and discovered
moments (GMM) panel data methodology, Horobet et al. (2021) that the bank’s capital had a favorable relationship with the bank
investigated the factors eroding into bank profitability in Central profitability. Bank profitability is affected by bank-specific and
and Eastern European economies (CEE) nations from 2009 to market-specific factors, according to Hossain and Khalid (2018),
2018. Inflation rate (IR), budget balance, and non-government Odusanya et al. (2018), Mosharrafa and Islam (2021) looked
spending all had a substantial negative impact, according to at bank’s profitability in Bangladesh from 2007 to 2017 and
the researchers. Credit, lending rates, capitalization percentage, discovered a favorable relationship between loan and efficient
and concentration rate all play a role in deciding a bank’s management and bank profitability. Menicucci and Paolucci
profitability. Using the E-views panel data approach, Sarwar (2016) examined, from 2006 to 2015, the profitability and
et al. (2018) analyzed 21 commercial banks in Pakistan from endogenous variables of the 28 biggest banks in the European
2006 to 2015. They discovered that liquidity, asset management Union (EU). A significant link between profitability as well as
quality, and capital adequacy have a significant influence on a liquidity ratio (LR), bank size, and deposit ratio is supported
bank’s profitability. Sanyaolu et al. (2019) used a fixed effect by empirical findings. Profitability, meanwhile, is negatively
regression model to examine the factors affecting the bank impacted by the asset quality based on the results of the
profitability of Deposit Money Banks in Nigeria from 2008 to regression. Additionally, Abel and Le Roux (2016) used fixed
2017. According to their research finding, both inflation and effect model panel regression models to conduct an empirical
profitability are linked. According to Abdulkabir et al. (2020), study of Zimbabwe’s banking sector between 2009 and 2014.
the capital structure and operational costs were negatively They discovered that there is empirical support for the positive
correlated. El-Kassem (2017) discovered that while variance relationships between the size of liquid funds, capital volume,
with an independent variable “Cost to Income Ratio” has total assets, and cost efficiency and profitability. To determine
a negative and significant impact on the variation in bank the degree of impact on the financial performance over the
performance, variability in the exogenous variable such as “Total 10-year period from 2006 to 2016, Ozgur and Gorus (2016)
Capital Ratio” has a positive and significant impact on a bank’s conducted research on the deposit banks’ profitability of Turkey
performance. According to Koroleva et al. (2021), size, credit using the OLS method. The study’s findings indicated that the
quality, as well as liquidity are internal factors that have a capital size, asset quality, the ratio of interest earnings to total
significant positive impact on banks’ profitability. State-owned assets, and the interest rate set by the central bank all have an
banks are more profitable than other banks because of their impact on a bank’s profitability. The study also showed how
larger size, relatively high credit rating, and higher liquidity. the Turkish banks’ profitability was negatively impacted by the
On the other hand, the external factor, as expressed by the Global Financial Crisis of 2008. Using the panel data regression
standardized residuals of GDP, has a detrimental effect on analysis, Mehta and Bhavani (2017) conducted research on
the profitability of banks. The macroeconomic determinants the variables that influenced the profitability of 19 commercial
of GDP and inflation rate were discovered to be insignificant banks operating in the United Arab Emirates (UAE) between
by Ngweshemi and Isiksal (2021). According to the empirical 2006 and 2013. They discovered three elements, including
findings, bank-specific factors that are under management’s (i) cost-effectiveness, (ii) capital ratio, and (iii) asset quality
direct control provide a better explanation of profitability than that significantly improve the bank’s profitability. Phan et al.
macroeconomic factor variables that are out of their direct (2020) studied 10 Vietnamese-listed commercial banks, which
control. Between 2011 and 2015, Parvin et al. (2019) revealed were investigated between 2008 and 2018 using the instrumental
that the deposit-to-asset ratio (DTAR) was found to have a variables (IV) regression and OLS regression model. They
negative impact on the ROA, but the loan-to-asset ratio and discovered that factors like state ownership, loan size, loan to
bank size had a positive impact on the bank profitability. In GDP ratio, inflation rate (IR), and operating efficiency all have a
their research, Onofrei et al. (2018) discovered that in the positive effect on the profitability. Gwachha (2019) has examined
CEE region, which includes seven countries, inflation had the macroeconomic and bank-specific factors that affected the
no significant positive impact on the bank profitability and Nepalese banking sector’s profitability from 2004 to 2013. He
that non-governmental credit has a positive impact on the came to the conclusion that the loan portfolio has a significant

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negative impact on the profitability of the bank. Hosen (2020) models show a significantly negative impact of bank size on the
investigated 23 commercial banks in Bangladesh and discovered profitability. Ugo et al. (2016) studied the profitability of the
that interest rate spread, capital adequacy, and liquidity are all European Union (EU) banks from 2001 to 2018 and discovered
important factors. Lestaria et al. (2021) discovered that liquidity a positive association between profitability and GDP growing
and leverage have a negative impact on the profitability (ROE), rate. Opoku et al. (2016) investigated the factors that influence
whereas the bank size has a positive impact. Iskandar et al. bank profitability in Ghana. Non-performing loans (NPLs) have
(2019) investigated Malaysia’s banking sector and found that a detrimental impact on the bank profitability, according to their
various factors such as managerial efficiency, liquidity risk, and research. Profitability and economic growth have a favorable
credit risk all have a role to play in the bank’s profitability. association, according to Alhassan et al. (2016). Alzoubi (2018)
This also includes other factors such as earnings variable, asset investigated the profitability of Jordanian banks. According
structure, capital strength, and liquidity. According to Imtiaz to him, bank size (BS), stocks to assets, and deposits have a
et al. (2019), Gazi et al. (2021b) have a considerable favorable greater influence on the traditional bank’s profitability. Bhattarai
impact on profitability. Noman et al. (2015) and Ullah et al. (2018) showed that the capital adequacy ratio (CAR) and the
(2016) discovered a positive link between bank profitability and annual inflation rate are related. Islam and Nishiyama (2016)
economic growth. They also discovered that real interest rates studied banks’ profitability of South Asian countries using GMM
had a negative impact on profitability, but inflation, size, and methods for analyzing panel data. They observed a positive
capital sufficiency all have a favorable impact. Hasanov et al. association between ROA and interest rate. According to Nisar
(2009) and Syathiri et al. (2020) discovered that the size of (2015), a significant number of non-performing loans (NPLs)
a bank, the number of loans it makes, and the amount of reduce the bank profitability. Independent auditors, according
money it lends out are all factors. Bank profitability is impacted to Alina (2015), have a major impact on bank profitability.
by the adequacy of financial assets, the deposit-to-GDP level, Non-performing loans (NPLs) and interest rates, according to
and the operating efficiency, according to Brahmaiah (2018). Ariyadasa et al. (2016), have a detrimental impact on bank
Mohanty and Krishnankutty (2018) looked into the profitability profitability. In Syria, Al-Jafari and Alchami (2014) employed
of Indian banks. They discovered that capital creditworthiness the GMM approach to investigate the deciding factors of bank
and sufficiency ratios have a positive link with profitability, profitability. Inflation and the rate of economic development,
whereas size, loan-to-deposit ratio (LDR), expense ratio, and they discovered, have a favorable impact on profitability.
GDP growth all have a negative correlation. Huge capital, Interest rates have a considerable influence on bank profitability,
according to Chowdhury (2015) and Ozili (2016) is linked according to Aydemir and Ovenc (2016). According to Saeed
with banks’ desire to enhance profits. Hu and Xie (2016) and (2014), Regehr and Sengupta (2016), inflation has an adverse
Tan et al. (2016) calculated that taking risks has a positive impact on bank’s profitability, while bank size (BS) has an
impact on bank profitability and that debt risk has a negative advantageous impact. According to Isah (2018), Tabash et al.
impact on bank profitability. In the context of Indonesia, Hasan (2019), and Islam and Bhhuiyan (2021), profitability is positively
et al. (2020) investigated the impact of banks’ profitability in impacted by the bank size (BS), but negatively impacted by
regard to the two variables ROA and ROE. They discovered overhead expenses, liquidity, and non-performing loan (NPL).
that a number of factors, including the return on equity (ROE), Bank profitability assessors are chosen, based on the study’s
net interest margin, capital ratio, and liquidity, have a big nature and goal. Internal components are referred to as bank-
impact on a bank’s profitability. Using a generalized method of specific variables, and independent variables include size of the
moments (GMM) system, Jonathan and Xuan (2019) carried bank, debt to asset ratio (DAR), deposit to asset ratio (DTAR),
out a study on Nigeria and demonstrated how cost-efficiency equity to asset ratio (EAR), debt to equity ratio (DER), and
plays a significant role in achieving profitability in developing loan to deposit ratio (LDR) which are all factors to consider.
nations. Belke and Unal (2017) used the Generalized Method of This study looked at two macroeconomic parameters, the GDP
Moments (GMM) to conduct their study in Azerbaijan, which growth rate (GDPGR) and the inflation rate (IR), which are
has an oil-dependent economy, and found a positive relationship referred to as bank external factors.
between profitability and internal and external factors like total In the previous literature, we have noticed that the profit
assets, asset, and liability, price of oil, rate of inflation, economic of a bank depends on some external and internal factors.
cycle, etc. A study on the variables influencing the profitability Comparatively internal factors are more important and effective
of 27 banking sectors in Asian countries from the years 2012 toward banks’ profits that are proved in previous empirical
to 2016 was conducted by Dao and Nguyen (2020). The most studies. Most of the previous researches have profound insights
striking similarity between all entities is that they all recorded into these issues and have quantified that Assets Quality, Bank’s
the significantly inverse correlation between operational risk size (Iannotta et al., 2007; Moinescu, 2008), Capital ratio
and banking profitability. In particular, ROA and ROE are (Athanasoglou et al., 2006), and Management competence are
defined as profitability indicators. Similar to how Malaysia’s the greatest significant determinants of a bank’s profitability.
model shows no significant impact, Vietnam’s and Thailand’s Pre- and post-crisis researches using the same bases to analyze

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bank profitability (Athanasoglou et al., 2006; Brei et al., 2020; LDR, Loan to Deposit Ratio; DAR, Debt to Asset Ratio; EAR,
Budhathoki et al., 2020; López et al., 2020; Tercero-Lucas, 2020) Equity to Asset Ratio; IR, Inflation Rate (IR) and GDPGR, GDP
showed similar results. The global financial crisis has had a Growth Rate.
favorable impact on bank profitability (Abdullah and Tan, 2017).
This research addresses a gap in the literature by examining
the impact of bank-specific and macroeconomic factors on bank Model assumptions
profitability in Bangladesh and India. Researchers frequently
examined banking and financial markets drivers, which were Some assumptions used it to deduce the OLS estimators in
found to have a greater impact on banks’ profit ratios than linear regression models, and these are as follows (Kennedy,
macroeconomic factors. We propose the following hypothesis 2008);
based on a survey of the literature. Assumption 1: A random sample of observations is used.
The regression model is linear in the coefficients and error term.
H1: Banks’ specific factors/variables (internal factors) have no
significant impact on profitability (ROA ad ROE) of banking Y = β0 +β1 X1 + β2 X2 +........ + βk Xk + u
sector in Bangladesh and India.
H2: Microeconomic factors/variables (external factors) have no Assumption 2: The conditional mean should be zero.
significant impact on profitability (ROA ad ROE) of banking
E(u/X) = 0
sector in Bangladesh and India.
H3: There is no significant difference between Bangladesh and The error term accounts for variation in the dependent variable
India’s banking sector based on Profitability impacting factors. that is not explained by the independent variables. The error
term’s values should be determined by chance.
Assumption 3: There is no multicollinearity or
Research methods and procedures perfect collinearity.
Because there is only one independent variable in a simple
Sample selection
linear regression model, this assumption will hold true by
default. However, there is more than one independent variable
To select the sample banks for the present study, two
in multiple linear regression models. The OLS assumption of
lists of total banks were collected from Bangladesh and India.
no multicollinearity states that the independent variables should
Bangladesh and India have been selected purposively from
not have a linear relationship.
among the South Asian countries. The present study comprises
Assumption 4: There is no autocorrelation and there
of 43 private commercial banks from Bangladesh (Moyo and
is homoscedasticity.
Tursoy, 2020) and 89 commercial banks from India as per
the population. Based on the data availability, 40 commercial Var (u/X) = σ 2
banks were chosen at random from the total population, with 20
Cov(ui uj /X) = 0 for i 6= j
banks from Bangladesh and 20 from India. This study employed
secondary data from the last 12 years (2010–2021), and 300 If the variance is not constant dependent on X’s, the
observations were created using the panel data approach. linear regression model has heteroscedastic errors which are
likely to produce incorrect estimates. According to the no
autocorrelation OLS assumption, different observations’ error
Model terms should not be correlated with one another.
Assumption 5: The error term has a normal distribution.
The profitability determining factors of the banking sector of OLS does not need the error terms to have a normal
Bangladesh and India are estimated by the following models; distribution for producing unbiased estimates with the least
Model-1: ROA it = αi + β1 (BS) it + β2 (DAR)it + variance. Satisfying this assumption, on the other hand,
β3 (DTAR)it + β4 (EAR)it + β5 (DER)it + β6 (LDR)it + β7 (IR)it + it becomes important when some additional finite-sample
β8 (GDPGR)it + uit properties must be defined. It should be noted only the error
Model-2: ROE it = αi + β1 (BS) it + β2 (DAR)it + terms must be normally distributed. It is not necessary for the
β3 (DTAR)it + β4 (EAR)it + β5 (DER)it + β6 (LDR)it + β7 (IR)it + dependent variable Y to be normally distributed.
β8 (GDPGR)it + uit
Where, α = Intercept of the model; i = Index of Banks;
t = Time index; βk = Regression Coefficient to be estimated; Outlier test
uit = Random error term.
ROA, Return on Asset; ROE, Return on Equity; DTAR, Statistically, an outlier is a value that lies abnormally far from
Deposit to Asset Ratio; BS, Bank Size; DER, Debt to Equity Ratio; other values within a population. Outliers are observations with

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unusual values for a single variable. A non-random distribution Independent variables

of outliers can reduce normality. Statistical tests lose power as The present study considered the determining factors of the
a result of this increase in error variance. Therefore, we tested profitability of banks, which are categorized into two i) Banks’
outliers before estimating the model. As a result of the outlier specific factors/variables (internal factors) and ii) industry and
detections, errors were reduced and the generalization ability microeconomic factors/variables (external factors). We use the
of the results was enhanced. A total of 300 observations were following internal factors (Banks’ specific factors/variables);
selected after checking 12 outliers from 312 observations. BS, DAR, DTAR, EAR, DER, and LDR. Microeconomic
determinants comprised GDP Growth Rate (GDPGR) and
Inflation Rate (IR). Some selected independent variables were
utilized to investigate the causes affecting Bangladesh and India’s
Data analysis instruments banking sectors’ profitability (Table 2).

E-views software is cast off to evaluate all models and

investigations as panel data analysis tools. The Random-Effect Houseman test, Brush–Pagan Lagrange
Model, Fixed Effect Model, and Pooled Ordinary Least Square multiplier, and panel data unit root test
Model were employed in this investigation (OLS). Error term,
intercept, and coefficient regression are examples of specific Houseman test, Brush–Pagan Lagrange multiplier (LM), and
assumptions (Kennedy, 2008). The Hausman experiment was F-test were used to select the appropriate model for this study.
utilized in this study to compare the results of the fixed effect The F-test is selected by focusing on Table 3 first to indicate
and random effect specifications. The BPLM–Breusch–Pagan between the pulled and fixed effect models.
Lagrange Multiplier Test is also used to ensure that the models Table 3 indicates that the LM testing was applied to select
are suitable. However, the aforementioned regression models the appropriate model between random and combined effects.
have been presented in this regard. The panel data regression The results revealed that overall random effect models were
model was used to look at specific aspects of banks as well as pooled at a significant 5% level of chi-square quality for Model
macroeconomic issues that influence profitability. 1 and at 1% for Model 2. The fixed and random effects are not
accepted pooled model base on LM test and F test. Individually
the effects for Bangladesh and India also remain the same and
the rejected pooled model at significant 5 and 1% levels is based
Variables on the F-test and LM test. Breusch–Pagan Test and Hausman
Test were conducted to select the model between static and
Dependent variables random effects for overall and Bangladesh, and India. At the
The purpose of this study was to investigate the impact level of 5%, significant p value and chi-square statistics are very
of profit determining aspects on the banking industry in high in the case of both models for random effect. Therefore,
Bangladesh and India on governing bank’s specific variables and the random effect model is pertinently used for both models for
macroeconomic variables. According to Isayas (2022), there are ROA and ROE.
two indicators of profitability of the banking industry that are
returns on assets (ROA) and return on equity (ROE) which are
considered dependent variables in this study (Table 1). Analysis and results
Return on Asset (ROA): ROA is the profit ratio that shows
the bank’s ability to make a profit over their whole assets Table 4 presents the descriptive statistical value for all
affianced in the banking industry. ROA is the widely used and key variables and shows the affirmative mean values of all
key ratio of gauging bank’s profitability (Tan, 2016). This ratio independent variables. The value is used for measuring banks’
supports banks to understand the capability to invest and use performance of both Bangladesh and Indian banks overall. The
financial resources to make a profit. independent variables ROA and ROE have mean values of
Return on Equity (ROE): ROE refers to the return of 0.0995 and 0.127, whereas the median values are 0.0107 and
shareholders to their equity. Return on Equity (ROE) flouts 0.138 (SD = 0.0172 and 0.326), respectively.
the risks allied with financial leverage and height leverage The mean and median value for bank size (BS) are 24.7
is habitually resolute by regulations. It denotes a bank’s and 26.9%. Deposit to asset ratio (DAR) has a mean value of
profit generated by the amount invested by its shareholders 23.75%. The table also shows that the mean value of GDPGR
(Olorunniwo and Hsu, 2006). ROE is important to calculate is 2.061%, whereas for the inflation rate (IR) it is 3.985. DER,
to see how the bank management is using shareholder funds. BS, and DAR have slightly higher mean and median value. The
ROE assists quantity a bank’s ability to use investment funds to results of Table 4 suggest that ROE and ROA are 0.10 and 0.107%
increase earnings. (mean value) separately, which indicates that the performance of

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TABLE 1 Description of dependent variables.

Variables Measurement Source of data collection References

Profitability indicators
Return on asset ROA% = Net profit after tax/total assets Bank scope
Athanasoglou et al.,
2008; Masood and
Ashraf, 2012; Francis,
2013; Perera et al., 2013;
Noman et al., 2015
Return on equity ROE% = Net profit after tax/ total Bank scope
equity

Source: Authors’ own explanations.

TABLE 2 Description of independent variables.

Variables Measurement References

Banks’ specific factors/variables (internal factors)

Date-to-asset ratio DAR% = Total liabilities/Total assets Gazi et al., 2021a
Equity-to-asset ratio EAR% = Total equity/Total assets Staikouras and Wood, 2004
Loan-to-deposit ratio LDR% = Total loans/Total deposits Menicucci and Paolucci, 2016; Regehr
and Sengupta, 2016
Deposit-to-asset ratio DTAR% = Total deposit/Total assets Rahaman and Akhter, 2015
Debt-to-equity ratio DER% = Total Liabilities/Total equity Pradhan and Khadka, 2017
Bank size BS= {ln(Total Bank Assets)} Petria et al., 2015
Microeconomic factors/variables (external factors)
GDP growth rate GDPGR% = (GDPn -GDPn−1 /GDP n−1 ) Olorunniwo and Hsu, 2006; Al-Jafari
Yearly percentage change in the gross and Alchami, 2014; Aydemir and
domestic Product Ovenc, 2016; Ugo et al., 2016
Inflation rate IR = Inflation growth rate

Source: Authors’ own explanations.

Bangladeshi banks and Indian banks is not good enough based condition; on the other hand for India’s private banks, ROE
on profitability. values are 1.14 and 13.08%, which indicate although it is not
From Table 5, we can conclude the results of the above table a much better position, but India is in a better position than
that there is no significant concern as regards multicollinearity Bangladesh.
based on Table 4 because independent variables do not have Table 7 shows the brief descriptive statistics of independent
high correlations and the variance inflation factor (VIF) for all variables. The overall performance of the private banking sector
predictor variables is less than 5. of Bangladesh and India in response to independent variables
Table 6 shows the descriptive statistics of profitability is not bad but not so good either. Among the banks’ specific
indicators of the overall performance of the banking sector factors/variables (internal factors), some position is good. The
of both Bangladesh and India, and also individually. As mean values of the bank size (BS) are 24.7%, deposit to
a prominent financial institution, the banking sector of asset ratio 23.75%, and debt to equity ratio is 13.4% which
Bangladesh and India is not in a favorable position as a whole. indicate the positive impact on the profitability of banks. The
Both countries could not ensure a good position. As a recognized mean values of DTAR, EAR, and LDR are slightly lower. On
profitability indicator, ROA and ROE are not looking sound. The the other hand, as microeconomic factors/variables (external
Bangladesh banks showed more volatility than Indian banks. factors) the inflation rate (IR) and GDP growth rate (GDPGR)
ROA showed almost the same variations for Bangladesh and indicate a comparatively strong position. The mean and median
India’s private banks. But ROE showed wide variations (14.06%) value of IR are 3.985 and 2.844%, and the mean and median
for the Indian private banks. For Bangladeshi private banks, value of GDP growth rate are 2.061 and 1.0788%, respectively.
ROA is 0.79% and ROE is 0.98%, which indicates the miserable Banks’ specific factors and microeconomic factors showed

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TABLE 3 Houseman test, Brush–Pagan Lagrange multiplier (LM), and Panel data unit root test, and result of F-test.

Overall Bangladesh India

Tests Model-1 Model-2 Model-1 Model-2 Model-1 Model-2

F Test F Statistic 2.498 3.249 2.611 4.012 3.012 4.075

P-value 0.011 0.021 0.009 0.005 0.009 0.0014
Breusch-Pagan Test Chi-Square statistic 4.768 10.588 3.999 11.247 5.587 10.8576
P-Value 0.031 0.000 0.031 0.000 0.029 0.000
Hausman Test Chi-Square statistic 1.821 7.215 1.915 6.345 1.758 7.1857
P-Value 0.941 0.404 0.956 0.340 0.889 0.399

H0 = The pooled model is better than the fixed effect model, H1 = The fixed effect model better than the pooled model
H0 = The random effect model is better than the fixed effect model, H1 = The fixed effect model is better than the random effect model

Panel data unit root test (Levin, Lin and Chu)

Variables t-statistics p-value

ROA −10.42512 0.000

ROE −9.02145 0.000
BS −6.08754 0.000
DAR −7.85214 0.000
DTAR −9.98745 0.000
EAR −12.12441 0.000
DER −7.45872 0.000
LDR −12.45879 0.000
IR −6.95123 0.000
GDPGR −13.75315 0.000
H0 = Existence of a common unit root, H1 = Absent of a common unit root.

TABLE 4 Descriptive Statistics for both Bangladesh and India (overall).

Variables Observation Mean Median SD Sample variance Maximum Minimum

ROA 300 0.0995 0.0107 0.0172 0.032 0.048 1.25

ROE 300 0.127 0.138 0.326 0.121 2.032 5.12
BS 300 24.7 26.9 0.791 0.68 3.254 9.875
DAR 300 23.75 24.45 0.889 16.28 7.855 48.258
DTAR 300 0.852 0.831 0.492 0.421 2.587 6.846
EAR 300 0.641 0.759 0.763 0.087 1.875 3.357
DER 300 13.4 12.8 9.26 6.26 8.214 14.258
LDR 300 0.947 0.857 0.188 3.034 2.680 6.279
IR 300 3.985 2.844 1.055 0.069 6.578 7.057
GDPGR 300 2.061 1.0788 0.149 0.081 4.890 6.014

almost same variations for Bangladesh and India’s private (1.98%) and LDR (8.50%) of Bangladeshi private banks is higher
banks. than that of the Indian private banks. The private banks of
Furthermore, a Table 7 result reveals that throughout the Bangladesh and India appear to be sturdier by devouring a fairly
study period, the Bangladeshi and Indian private banks look high ratio of GDP growth rate (GDPGR) and that are 7.52 and
for more strength. But some internal factors are strong for 7.58%, respectively. The inflation rate is almost the same for both
Bangladesh and some factors are strong for India. The ratio of countries (7.87 and 8.52%).
bank size (BS) (76.18%), DAR (17.23%), and LDR (5.61%) of Table 8 presents the Pearson’s correlation coefficients of
Indian private banks is higher than those of the Bangladeshi the independent variables in relation to dependent variables
private banks. This indicates that the Indian private banks such as ROA and ROE used in this study. The Pearson’s
managed their operational activities efficiently. The ratio of EAR correlation coefficients are depicted below the diagonal. When

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TABLE 5 Pearson correlation matrix and VIF.

Variables ROA ROE BS DAR DTAR EAR DER LDR IR GDPGR

ROA 1
ROE −0.182 1
BS −0.147* 0.725 1
DAR −0.091 −0.568** 0.051 1
DTAR 0.736** 0.318 0.122 0.082* 1
EAR 0.075* 0.182** −0.035* −0.321 0.510** 1
DER −0.082 0.256* −0.134* 0.514** 0.0545 −0.058* 1
LDR 0.921** −0.552* −0.311* 0.601 0.349 −0.015 0.096** 1
IR 0.309 0.0741* −0.056* −0.014 0.211** −0.302 −0.572* 0.089* 1
GDPGR 0.231* 0.682** −0.079 0.164** 0.381 0.182* 0.479* −0.1215 0.387 1
VIF 2.452 1.097 3.547 2.782 1.087 2.273 1.873 2.743 1.089 2.821

* P-value < 0.05, ** P-value < 0.01.

TABLE 6 Profitability indicators’ summary.

Variables Observation Mean Median SD Sample variance Maximum Minimum

Overall private commercial banks

ROA 300 0.0995 0.0107 0.0172 0.032 0.048 1.25
ROE 300 0.127 0.138 0.326 0.121 2.032 5.12
Private commercial banks of Bangladesh
ROA 180 0.79 0.980 0.38 0.0.18 0.52 2.40
ROE 180 6.12 0.185 4.25 7.64 7.11 14.28
Private commercial banks of India
ROA 120 1.14 1.03 0.48 0.15 0.41 2.27
ROE 120 13.08 14.06 3.07 10.15 7.55 19.33

the coefficient of correlation between variables exceeds 0.80 for ROE (model-1) and 0.342 for ROA and 0.132 for ROE
(Alharbi, 2017) then the multicollinearity problems occur. (model-2). The coefficient values of all independent variables are
The matrix shows that in general the correlation between statistically significant in F-statistics at the 1% significance level
the banks’ specific factors/variables (internal factors) is not (Field, 2009). The study reveals that the strength of Bank size
strong, suggesting that multicollinearity is not austere or non- (BS) and Debt to Asset Ratio (DAR) is positive and significant
existent. in explaining ROA from the banks’ particular characteristics.
The linearity difficulties in the explanatory variables are not The Loan to Deposit Ratio (LDR) is also shown to be negative
apparent in the correlation matrix (does not exceed 0.80). ROE and important when it comes to a bank’s Deposit to Asset Ratio
and BS, DAR, EAR, DER, and IR are favorably associated with (DTAR). Neither the Equity to Asset Ratio (EAR) nor the Debt
ROA, however GDPGR is adversely connected with ROA, as to Equity Ratio (DER) has any positive or negative implications.
seen in the matrix. Finally, ROE is positively associated with If the macroeconomic variables such as ROA, IR, and GDPGR
EAR, LDR, and ROA, whereas it is adversely associated with BS, are positive and significant, bank-specific variables, such as
DAR, DTAR, DER, IR, and GDPGR. Bank size (BS) and Equity to Asset Ratio (EAR) are positive
Table 9 depicts the impact of macroeconomic variables and and significant, whereas the Deposit to Asset Ratio (DTAR)
firm-specific on bank profitability, as measured by ROA and and Debt to Equity Ratio (DER) are negative and insignificant
ROE. The following are the places where regression results can (Iannotta et al., 2007). In the case of ROE, the GDP growth
be found: rate is to be considered positive significant, whereas the inflation
The result of pooled OLS estimates equations considering rate (IR) is to be found negative significant. Furthermore,
ROE and ROA as dependent variables of this study. Table 9 the DW (Durbin–Watson) test values for models (I) and (II)
shows that the models are well fitted with data moderately and are 1.939, 1.908, 1.986, and 1.955, respectively, implying that
are having the adjusted R-square of 0.338 for ROA and 0.218 there is no autocorrelation grounded on the decree of thumb

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TABLE 7 Summary of the independent variables.

Variables Observation Mean Median SD Sample variance Maximum Minimum

Overall private commercial banks

BS 300 24.7 26.9 0.791 0.68 25.45 65.04
DAR 300 23.75 24.45 0.889 16.28 38.47 52.142
DTAR 300 0.852 0.831 0.492 0.421 0.075 0.871
EAR 300 0.641 0.759 0.763 0.087 0.08 0.255
DER 300 13.4 12.8 9.26 6.26 5.12 14.252
LDR 300 0.947 0.857 0.188 3.034 1.65 3.252
IR 300 3.985 2.844 1.055 0.069 3.214 4.221
GDPGR 300 2.061 1.0788 0.149 0.081 5.147 15.547
Private commercial banks of Bangladesh
BS 180 16.22 22.71 0.55 0.32 6.88 10.25
DAR 180 49.58 58.88 7.77 48.78 65.96 82.25
DTAR 180 4.32 3.57 1.85 1.06 1.98 6.05
EAR 180 1.98 0.08 0.48 0.32 1.55 3.12
DER 180 8.50 7.98 0.69 0.55 5.82 11.02
LDR 180 4.92 6.72 0.90 0.77 3.60 7.80
IR 180 7.87 7.90 2.80 5.73 4.78 11.89
GDPGR 180 7.52 6.99 1.78 5.25 4.65 11.02
Private commercial banks of India
BS 120 17.23 7.34 0.43 0.19 5.99 8.12
DAR 120 76.18 75.88 6.99 44.45 55.85 90.02
DTAR 120 3.12 2.44 1.05 1.03 1.87 5.55
EAR 120 1.89 0.09 0.48 0.24 1.2 3.87
DER 120 7.77 7.55 0.70 0.50 6.01 10.08
LDR 120 5.61 5.79 0.94 0.88 3.20 8.00
IR 120 8.52 8.35 2.40 5.66 4.50 12.01
GDPGR 120 7.58 7.55 1.82 3.21 3.91 11.30

ROA, Return on Asset; ROE, Return on Equity; DTAR, Deposit to Asset Ratio; BS, Bank Size; DER, Debt to Equity Ratio; LDR, Loan to Deposit Ratio; DAR, Debt to Asset Ratio;
EAR, Equity to Asset Ratio; IR, Inflation Rate (IR) and GDPGR, GDP Growth Rate.

(Hendry, 2000). Following that, two explanatory variables in on ROE, but Bank size (BS), Loan to Deposit Ratio (LDR) are
this model (EAR and DER) are not significant for ROA and found to have negative significant impact on ROE as banks’
DAR, while LDR is not significant for ROE (Abdulkabir et al., specific variables. Whereas macroeconomic factors like GDP
2020; Horobet et al., 2021), thus we may delete these variables growth rate and Inflation rate (IR) were found to have a negative
from the model and reguess the model using GSA (General impact on ROE. The Coefficient standards of the all independent
Specific Approach) (Sukmana and Febriyati, 2016) to get the variables are conjointly statistically significant of F-statistics at
most efficient model. the significant level of 1% and adjusted R-square of 0.437 for
Table 10 displays the regression results for Bangladesh, ROA and 0.0332 for ROE which proved the models are well fitted
which show the impact of firm-specific and macroeconomic for the Bangladeshi private commercial banking sector.
variables on bank profitability, as dignified by ROA and ROE Table 11 demonstrates that the models are relatively well
as dependent variables. The results of this model determine matched with data, with adjusted R-squares of 0.872 for
that Bank size (BS), to Asset Loan to Deposit Ratio (LDR), and ROA and 0.758 for ROE. All of the independent variables’
Debt to Asset Ratio (DAR) are found to have positive significant coefficient values are statistically significant in F-statistics at the
impact on ROA, whereas the Deposit to Asset Ratio (DTAR) 1% significance level. The Indian private commercial banking
was found to have a negative impact as banks’ specific variables. sector appears to be strongly based on the banks’ unique ROA
Bank’s macroeconomic variable GDP growth rate has a positive characteristics. We discovered that the debt to asset ratio (DAR),
impact on ROA. For ROE, Debt to Asset Ratio (DAR) and the deposit to asset ratio (DTAR), and the debt to equity ratio
Deposit to Asset Ratio (DTAR) have positive significant impact (DER) are all positive and significant when it comes to ROA. The

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TABLE 8 Correlation coefficients based on 300 observations.

Variables ROA ROE BS DAR DTAR EAR DER LDR IR GDPGR

ROA 1.0000 0.4256 0.1588 0.0896 −0.0000 0.5296 0.0787 0.0533 0.8750 −0.1720
ROE 1.0000 −0.1215 −0.568 −0.0094 0.0565 −0.3193 0.1313 −0.4325 −0.1873
BS 1.0000 0.4565 −0.1235 0.3370 0.4111 −0.0342 0.3829 −0.0342
DAR 1.0000 0.1872 0.2584 0.6210 −0.1247 0.1752 0.7698
DTAR 1.0000 0.3580 −0.0988 −0.3026 0.2542 0.0872
EAR 1.0000 0.1769 −0.0663 −0.5471 −0.0322
DER 1.0000 −0.0628 0.0746 0.0816
LDR 1.0000 0.6541 0.2029
IR 1.0000 0.1584
GDPGR 1.0000

ROA, Return on Asset; ROE, Return on Equity; DTAR, Deposit to Asset Ratio; BS, Bank Size; DER, Debt to Equity Ratio; LDR, Loan to Deposit Ratio; DAR, Debt to Asset Ratio;
EAR, Equity to Asset Ratio; IR, Inflation Rate (IR) and GDPGR, GDP Growth Rate.

TABLE 9 The results of the random effects estimation as measured by ROA and ROE for bank profitability.

Dependent variable: ROA (Overall) Dependent variable: ROE (Overall)

Variable Model-I Model-II Model-I Model-II
Coefficient P-value Coefficient P-value Coefficient P-value Coefficient P-value

C 0.028 0.316 0.033 0.003 0.096 0.740 0.610 0.004

BS 0.012 0.918*** 0.215 0.854*** 0.022 0.310*** 0.254 0.774***
DAR 0.069 0.000*** 0.0691 0.000*** 0.152 0.252 0.872 0.587
DTAR −0.372 0.024** −0.334 0.010*** −7.324 0.003*** −7.992 0.002***
EAR 0.005 0.252 0.365 0.0258 0.277 0.013** 0.221 0.01***
DER −5 05 0.578 0.854 0.954 −0.009 0.000*** −0.009 0.000***
LDR −0.075 0.019*** −0.082 0.001*** 0.003 0.992 0.875 0.158
IR 0.875 0.125*** 0.596 0.000** −0.082 0.789** −0.654 0.100**
GDPGR 0.258 0.0100** 0.364 0.010*** 0.658 0.852*** 0.753 0.854***
Observations 300 300 300 300
Adjusted R–squared 0.338 0.342 0.218 0.132
F–statistic 39.174 63.852 10.985 19.385
Prob (F-statistic) 0.000*** 0.000*** 0.000*** 0.000***
Durbin-Watson 1.939 1.908 1.986 1.955

** p < 5%, *** p < 1%. ROA, Return on Asset; ROE, Return on Equity; DTAR, Deposit to Asset Ratio; BS, Bank Size; DER, Debt to Equity Ratio; LDR, Loan to Deposit Ratio; DAR, Debt
to Asset Ratio; EAR, Equity to Asset Ratio; IR, Inflation Rate (IR) and GDPGR, GDP Growth Rate.

equity to asset ratio (EAR) of banks is negative and considerable. Discussion

GDP growth rate (GDPGR) and inflation rate (IR) are both
negative and major macroeconomic determinants on ROA. Breusch–Pagan Test and Hausman Test show that fine
Furthermore, Table 11 shows those banks’ unique variables, such goodness of fits of regression models and F-statistics as the
as equity to asset ratio (EAR) and loan to deposit ratio (LDR), coefficient value is significant. Researchers have employed a
are positive and substantial, but debt to asset ratio (DAR) and general to specific strategy and discovered that all explanatory
deposit to asset ratio (DTAR) have a negative and significant factors included in the reestimation are statistically significant.
impact on ROE. Banking growth in terms of bank deposit to Even though Durbin–Watson (DW) Test confirmed that there
GDP growth rate has a negative significant impact on ROE in is no second-order autocorrelation present, inconsistency is
macroeconomic variables. There is no autocorrelation based on not the issue, as the models reveal a positive first-order
the Durbin–Watson (DW) test value. autocorrelation and it does not imply that the estimates are

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TABLE 10 Bangladesh’s bank profitability regression results using Random Effects Estimation (measured by ROA and ROE).

Dependent variable: ROA Dependent variable: ROE

ROA analysis Coefficient P-value ROE analysis Coefficient P-value

C 0.023 0.315 C 0.0345 0.0003

BS 0.011 0.010** BS −0.0258 0. 001**
DAR 0.071 0.000*** DAR 0.0709 0.000***
DTAR −0.383 0.025** DTAR 0.349 0.01***
EAR 0.005 0.338 EAR 1.258 0.065
DER −4.024 0.688 DER 5.125 0.593
LDR 0.389 0.001*** LDR −0.483 0.001***
IR 0.398 0.355 IR −0.0347 0.031**
GDPGR 0.025 0.029** GDPGR −0.842 0.028***
Observations 180 180
Adjusted R-squared 0.437 0.332
F-statistic 28.587 54.753
Prob (F-statistic) 0.000*** 0.000***
Durbin-Watson 1.899 1.901

** p < 5%, *** p < 1%. ROA, Return on Asset; ROE, Return on Equity; DTAR, Deposit to Asset Ratio; BS, Bank Size; DER, Debt to Equity Ratio; LDR, Loan to Deposit Ratio; DAR, Debt
to Asset Ratio; EAR, Equity to Asset Ratio; IR, Inflation Rate (IR) and GDPGR, GDP Growth Rate.

TABLE 11 Random effects estimation regression for banks’ profitability in India (measured by ROA and ROE).

Dependent variable: ROA Dependent variable: ROE

ROA analysis Coefficient P-value ROE analysis Coefficient P-value

C 1.480 1.521 C 38.70 0.028***

BS −0.811 0.788 BS −1.022 0.398
DAR 4.851 0.022*** DAR −1.066 −0.022**
DTAR 4.083 0.001** DTAR −0.844 −0.00***
EAR −2.321 −0.010*** EAR 3.221 0.002***
DER 2.344 0.023** DER 1.855 1.817
LDR −0.047 0.000 LDR 5.185 0.05***
IR −2.99 −0.041** IR 1.988 0.026**
GDPGR −2.011 0.033** GDPGR −0.591 −0.165
Observations 120 120
Adjusted R-squared 0.872 0.758
F-statistic 49.0257 54.0874
Prob (F-statistic) 0.000*** 0.000***
Durbin-Watson 1.785 1.901

** p < 5%, *** p < 1%. ROA, Return on Asset; ROE, Return on Equity; DTAR, Deposit to Asset Ratio; BS, Bank Size; DER, Debt to Equity Ratio; LDR, Loan to Deposit Ratio; DAR, Debt
to Asset Ratio; EAR, Equity to Asset Ratio; IR, Inflation Rate (IR) and GDPGR, GDP Growth Rate.

inaccurate. The Hausman test result indicates that the fixed effect and ROE are not in a good position for an overall judgment,
for testing hypotheses is the proper model. Fixed and random but the condition is more vulnerable for Bangladesh (ROA is
effects are not adopted in the model base pooled in LM test and F 0.79% and ROE is 0.98%) than India. The model indicated that
test. Separately remained the same for Bangladesh and India and bank size (BS), EAR (1.98%), and LDR as drivers of profitability
rejected the pooled model at significant 5 and 1% levels based on have a favorable impact on bank profitability in Bangladesh.
F-Test and LM tests. Overall, the banking sector’s profitability Based on the table, the ROA for Bangladeshi and Indian private
is not satisfactory enough for both countries (Table 4). Based banks exhibited nearly identical changes. GDPGR is adversely
on Table 6, comparatively profitability indicators such as ROA associated with ROA, whereas ROE and BS, DAR, EAR, DER,

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and IR are positively connected with ROA. Finally, ROE is the banking sector in Bangladesh and India. The variables
positively associated with EAR, LDR, and ROA, whereas it is influencing the economics of Bangladesh and India are similar
adversely associated with BS, DAR, DTAR, DER, IR, and GDP in most cases. Bangladesh is ahead in some indices while India
growth rate. Sarwar et al. (2018), Budhathoki et al. (2020), is ahead in some indices. In the Banking system, India is
and Horobet et al. (2021) all showed similar results in terms more integrated, tidy, and successful than Bangladesh. However,
of the impact on production. According to some study, the Bangladesh is much more advanced than before. The results
size of a bank has a little bearing on the productivity or of the study showed that the effect of DAR and DTAR on
return on investment, i.e., Aladwan (2015), Adelopo et al. ROA and ROE as a profitability indicator is positive significant
(2017), Fidanoski et al. (2017), and Tharu and Yogesh (2019). in both cases. Especially for Bangladesh, BS, DAR, LDR, and
Banks’ specific factors have a great impact on productivity. This GDP have a positive impact, but DTAR is to be found to be
study has proved it for both the countries. The bank’s specific negative on ROA. For India, DAR, DTAR, and DER are found
components of debt to equity ratio (DER), loan to deposit ratio positive and significant but EAR, GDPGR, and IR are found
(LDR), and equity to asset ratio (EAR), all have a significant to be negative and significant with ROA (Tables 10, 11). Thus,
impact on the profitability. The effect of some factors is positive, the analysis proves that there is a difference between Bangladesh
the effect of some factors is negative, and some elements have and India (Tan, 2016; Brahmaiah, 2018) on the basis of banks’
no effect. The point is, the effects of most factors are more or specific and macroeconomic factors. So, null hypothesis (H3) is
less proven. Several researches on the association between bank- hereby rejected.
specific characteristics and profitability (Alshatti, 2015; Kajola
et al., 2018; Okere et al., 2018) showed comparable results to
those of the current study. Chowdhury (2015), Uwuigbe et al. Conclusion
(2015), Ariyadasa et al. (2016), Aykut (2016), Muriithi et al.
(2016), Opoku et al. (2016), Annor and Obeng (2017); and The objective of this paper was to analyze the impact of
Kani (2017) obtained the opposite results, indicating that certain the determining factors on the profitability of Asian countries
factors had little impact on profitability. (H1) The hypothesis in special reference to Bangladesh and India. Considering
that specific factors/variables (internal factors) of banks have bank’s special factors that are called internal factors and
no significant impact on profitability (ROA and ROE) of the macroeconomic factors that are called external factors found
banking sector in Bangladesh and India is hereby rejected null less or more significant impact on the probability of both
hypothesis 1 (H1), as evidenced by Tables 4, 7, 9, which show factors. Bank’s special factors are called internal factors and
that specific factors have an impact on productivity. According macroeconomic factors are called external factors. Internal
to the findings, fixed effects models are preferred over pooled factors are factors that are largely influenced by the management
effects models, since the P values for both models are very low in of a bank. This research analyzed the aggregate data of 20
F statistics, rejecting the null hypothesis (H2) at the 1% level of banks in Bangladesh and 20 banks in India from 2010 to
significance. DTAR and DER have a negative connotation with 2020 and examined independent variables such as ROA and
ROA, but EAR and LDR have a favorable connotation with ROA ROE and dependent variables such as BS, DAR, DTAR, EAR,
(Alharbi, 2017; Parvin et al., 2019). The effects of EAR and DTAR DER, LDR, IR, and GDPGR to determine the profitability of
on ROA are statistically significant (Al-Jafari and Alchami, 2014; both countries’ banks during the post-financial crisis. Through
Ariyadasa et al., 2016) at the 1% level of significance. EAR, LDR, multiple regression analysis between ROA and bank’s specific
and DTAR all have a considerable favorable impact on ROE, and macroeconomic variables and, ROE and bank’s specific
implying that the higher the effect on productivity, the better. and macroeconomic variables the variability of determinants
Several researchers (Onofrei et al., 2018; Cetin, 2019; Mosharrafa over different years was found. The analysis showed that the
and Islam, 2021) have discovered similar results. The findings of Bank size (BS), Debt to Asset Ratio (DAR), Inflation Rate
Ariyadasa et al. (2016), Aydemir and Ovenc (2016), Tan et al. (IR), and GDP Growth Rate (GDPGR) were found to have
(2016), Alzoubi (2018); and Mohanty and Krishnankutty (2018) a positive impact and Deposit to Asset Ratio (DTAR) and
were also confirmed. Tables 8, 9 show that IR and GDPGR have Loan to Deposit Ratio o (LDR) were also found to be negative
a positive and significant impact on ROA, whereas GDPGR has and significant on ROA for both countries. GDP Growth
a positive significant impact on ROE and IR has a negative Rate (GDPGR), Bank size (BS), and EAR-Equity to Asset
significant impact on ROE. Aykut (2016), Tan and Anchor Ratio are positive and significant, whereas Deposit to Asset
(2017), Tan and Floros (2018), Kajola et al. (2019), and Trusova Ratio (DTAR), Inflation Rate (IR) and Debt to Equity Ratio
et al. (2021) were among the researchers who confirmed the (DER) are negative and significant for ROE. Due to fierce
findings of the current investigation. We can rule out the null competition in the banking sector, the BS is not important
hypothesis (H2) based on the findings. for the bank’s profitability of ROE and ROA to have a minor
Microeconomic factors/variables (external factors) have and puny significant impact. We see negative signs across all
no significant impact on profitability (ROA and ROE) of types of banks in terms of both the size of banks and the

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profitability relationship of Indian banks, but for Bangladeshi Author contributions

banks we found a positive significant impact on ROA and
negative significant impact on ROE. Profitability analysis aids Data curation: MG, IH, and BD. Formal analysis,
in comprehending the phenomenon of a company’s healthy methodology, and conceptualization: DY and MG. Funding
and sustainable financial situation. Profitability helps to justify acquisition: DY and IH. Investigation: IH, BD, and AH. Project
the financial success and growth trends of a bank. As a administration: MG and IH. Resources: AH, DY, and BD.
result, it is crucial to investigate the factors that influence Software: MG and BD. Supervision: AH and IH. Validation:
bank profitability. The result of this study is significant to YD and BD. Writing–original draft: MG. Writing–review and
policymakers, bankers, regulators, bank management, and other editing: IH, DY, BD, and MG. All authors have read and agreed
stakeholders. The findings will help bank management and to the published version of the manuscript.
shareholders to identify internal and external key factors for
profit maximization, which in turn lead to stability at the
bank level. This study included only two countries from South
Funding
Asia and very few selective banks’ specific and macroeconomic
This research project was supported by the Foundation
variables and did not include many others, which might affect
Project of National Natural Science Foundation of China (Grant
the profitability of private banking sector in Bangladesh and
Nos. 71962016 and 71962017) and received partial funding
India. Therefore, there is an opportunity to further investigate
support from the Universitas Airlangga, Indonesia.
the profitability of the South Asian countries’ banking sector.
Lastly, the study suggests that future studies be guided by
gathering more financial and economic data, as well as adopting Conflict of interest
cutting-edge research approaches. It seems important to expand
a list of potential variables and include more countries, so that The authors declare that the research was conducted in the
various data issues disappear and cannot be identified when absence of any commercial or financial relationships that could
running relevant diagnostics. This will help in conducting more be construed as a potential conflict of interest.
accurate investigations and harmonizing the problem of profit
making of banks.
Publisher’s note
Data availability statement All claims expressed in this article are solely those of the
authors and do not necessarily represent those of their affiliated
The original contributions presented in the organizations, or those of the publisher, the editors and the
study are included in the article/supplementary reviewers. Any product that may be evaluated in this article, or
material, further inquiries can be directed to the claim that may be made by its manufacturer, is not guaranteed
corresponding author/s. or endorsed by the publisher.

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