Bangladesh Bank Training Academy Journal

Abstract

"This paper investigates the link of nonconventional factors like regulationquality, business environment, political stability, and rule of law with the bank performance in Bangladesh for the period of 2000-2023. The analysis relies on Vector Autoregressive (VAR) model, Granger causality test and Impulse Response Function (IRF) to determine the impact of this four variables on the business performance of banks in Bangladesh. The finding shows that improvement in regulatory quality, political stability, and business environment significantly reduce Non-performing Loan (NPL) leading to better banking performance. Improvement in the rule of law does not have any immediate impact on NPL. It may be due to stricter enforcement of law forces the banks to acknowledge and report more bad loans. However, rule of law is seen as beneficial for the long-term stability because it promotes a more transparent and accountable system. The study concludes that persistent political stability, improved business environment, and higher regulation quality are essential for enhanced banking performance. So it is recommended that harmonized reforms, continuous monitoring, and capacity building for the relevant institutions are necessary so that the availability of these three social pillars of bank performance is ensured."