Bangladesh Bank Training Academy Journal

Abstract

The current paper attempts to explore the role of bank financing in economic growth in Bangladesh during the post-independence period. To this end, it would apply Co-integration and Vector Error Correction Model (VECM) to examine the impact of bank financing on Bangladesh GDP during 1980-2020. The empirical results confirm the superior role of bank financing in spurring GDP in Bangladesh. The paper suggests for choosing bankable projects with proper feasibility study to avoid diversion of funds and keep non-performing loan (NPL) at tolerable limit. It also recommends for developing capital market for long-term financing to lessen the adverse impacts of maturity mismatch in funds of banks. In this case, Islamic Shariah compliant sukuk based financing model can ease the pressure on banks by financing industrial and infrastructural projects in more sustainable way.