Impact of Liquidity on Islamic Banks’ Profitability: Evidence from Bangladesh

Limon Moinur Rasul ()
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Limon Moinur Rasul: Northern University, Dhaka, Bangladesh

Acta Universitatis Danubius. OEconomica, 2013, issue 9(2), 23-36

Abstract: This study examines the impact of liquidity on Islamic banks’ profitability during an 11 years period of 2001 to 2011. To explore and interpret the results the study has taken samples from five Islamic banks that have been in operation in Bangladesh on or before 2001 to till date. In order to construct the liquidity model it used four liquidity variables namely cash & due from banks to total assets (CDTA), cash & due from banks to total deposits (CDDEP), investment to total assets(INVSTA) and investment to total deposits (INVSDEP). According to adjusted R squares profitability variables return on assets (ROA), return on equity (ROE) and return on deposits (ROD) are respectively 17.1%, 4.5% and 24.6% dependent on independent variables. The statistical results suggest that CDTA is found insignificant with all profitability variables, whereas CDDEP is individually significant with all profitability variables except ROE. On the other hand INVSTA and INVSDEP are recognized significant with all three profitability variables. However, when ROE stands for an insignificant relationship with the overall liquidity model, ROA and ROD are identified significantly correlated with the similar model at 1% significant level. Unsurprisingly the findings do strengthen the specification that the impact of liquidity reflects adequate imposition on profitability that the Islamic banks in Bangladesh must abide by.

Keywords: Dependency level; Islamic Banking Goals; Liquidity ratios; Profitability ratios; Significance leve. (search for similar items in EconPapers)
Date: 2013
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