Volume 23: Article 1

Financial Soundness and Determinants of Profitability of Non-Bank Financial Institutions of Bangladesh

Sams Saiyadena Zeesha*
K. M. Zahidul Islam**

Abstract: The proposed study aims to evaluate the financial soundness of the NBFIs as well as to identify the firm-specific and macroeconomic factors that exert significant impact on the profitability. The bankruptcy classification model-Fulmer H-score model-was used in this study to examine financial soundness by using NBFI financial statements from 2014 to 2019. To identify the factors that influence a company’s profitability, we have decided to use return on assets (ROA) as the measure of profitability and have studied numerous company-specific variables as independent factors. The findings demonstrate that over the period under consideration, six NBFIs have been operating efficiently and are in better financial condition and other 11 NBFIs have shown substandard performance and are nearer to bankruptcy. The results show that firm size, deposit ratio, capital adequacy ratio (CAR), net interest margin (NIM), non-performing loan (NPL) ratio as well as cost to income ratio substantial effect on profitability; and therefore, the study recommends NBFIs to consider increasing their capital, look for opportunities to increase their client base and identify profitable projects to invest into. The study’s results further suggest a set of policy recommendations to promote transparency and manage non-performing loans effectively.

Keywords: profitability determinant, non-bank financial institution, financial performance, Bangladesh

* Management Trainee Officer, Dhaka Bank Limited, Bangladesh.
E-mail: saiyadena@gmail.com.

** Professor, Institute of Business Administration, Jahangirnagar University, Savar, Dhaka-1342,
Bangladesh. E-mail: ikhtiar@juniv.edu