# Determinants of Profitability of Banks: Evidence from Islamic Banks of Bangladesh

**Authors:** Nusrat Jahan  
**arXiv:** [2005.08759](https://arxiv.org/abs/2005.08759)  
**Date:** 2020-05-15  
**Summary page:** https://www.summarizepaper.com/en/paper/2005.08759v1/

## Key points

- Empirical study on profitability of Islamic banks in Bangladesh
- Selected six randomly chosen Islamic banks for analysis
- Used commonly suggested measures of profitability: ROA, ROE, ROD
- Measures widely used by Bangladesh Bank to evaluate bank performance
- Examined relationship between ROA and factors like AU and OE
- EXIM Bank Limited performed exceptionally well in all profitability measures
- Islami Bank Bangladesh Limited had largest average asset size but weaker performance
- Regression analysis showed significant association between ROD and ROA
- No significant associations found between ROD and operational efficiency or asset utilization
- Analysis of variance revealed high explanatory power (99.8%) of regression model for ROA variation
- Regression model as a whole was statistically significant based on F-ratio value exceeding critical value at 0.05 level of significance
- Study provides insights into factors influencing bank profitability in Islamic banking context using accepted measures like ROA and ROD
- Highlights exceptional performance of EXIM Bank Limited
- Average asset size does not necessarily correlate with profitability

## Summary

This empirical study focuses on the profitability of Islamic banks in Bangladesh. The researchers selected six randomly chosen Islamic banks and utilized commonly suggested measures of profitability, including Return on Asset (ROA), Return on Equity (ROE), and Return on Deposit (ROD). These measures are widely used by the Bangladesh Bank to evaluate bank performance. Additionally, the study examined the relationship between ROA and other factors such as Asset Utilization (AU) and Operational Efficiency (OE). The results showed that EXIM Bank Limited performed exceptionally well in terms of all profitability measures, including ROA, ROE, and ROD. Interestingly, even though Islami Bank Bangladesh Limited had the largest average asset size among the six Islamic banks, its performance was not as strong. Furthermore, a regression analysis was conducted to determine the association between ROD and ROA. The results indicated a significant association between these variables. However, no significant associations were found between ROD and operational efficiency or asset utilization. An analysis of variance was also conducted to assess the overall significance of the regression model. The coefficient of determination (r-square) revealed that 99.8% of the variation in ROA could be explained by the regression line. Moreover, the calculated F-ratio value exceeded the critical value at a 0.05 level of significance indicating that the regression model as a whole was statistically significant. In conclusion, this study provides valuable insights into understanding factors influencing bank profitability in an Islamic banking context using widely accepted measures such as ROA and ROD. It highlights EXIM Bank Limited's exceptional performance while emphasizing that average asset size does not necessarily correlate with profitability.