Analysing the Return on Asset to Construct Foretelling Indicator for Bangladeshi Banking Sector

Maria Afreen
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Maria Afreen: University Malaysia Sarawak, Faculty of Economics and Business

International Journal of Finance & Banking Studies, 2020, vol. 9, issue 4, 11-22

Abstract: Financial institutions and banks are required to follow mechanisms to monitor the positions and create stimulas for sensible risk-taking by divisions a well as individuals. Risk measurement comprises of the quantification of risk exposures, whereas risk management demonstrates to the overall procedures by which managers fulfill these needs to identify the risks and recognise the category of the risks it faces. This research targerts on the economic instability faced by banks in financial arena in terms of the crises affairs in regard of economic distress. Here, the methodology followed is based on the CAMELS framework variables. CAMELS is a short form stands for: capital adequacy (C), asset (A), management (M), earnings (E), liquidity (L) and sensitivity to market risk (S). Based on these nomenclature, a couple of variables should be selected, such as capital asset ratio, cost income ratio, non-performing loan, non-interest income as component series and return on asset (ROA) as the reference series to identify turning points of economic volatility in banking sector of Bangladesh. Thus, by forecasting the directional deviations it could make financial policymakers aware of the changes at early stage in financial markets and banking industry and privilege them to undertake precautionary steps for preventive purposes. The constructed MPI should have a incredible lead time of about 5to 7 months on an average in case of prediction against leading for the reference series. By renovating financial efficacy of venture banks, Bangladesh also should recover their subsequent banking system to execute these suggestions.

Keywords: Financial Cycle; Return on Asset; Financial Market; Economic Distress (search for similar items in EconPapers)
Date: 2020
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