Bangladesh Bank Training Academy Journal

Abstract

The objective of the paper is to evaluate the financial stability in the banking sector of Bangladesh on the basis of Macro-Financial Indicator (MFI) and Macroeconomic variables (MEV) of the IMF. The time period 1997 to 2012 has been taken in analyzing MFI while in analyzing MEV, the time period 1990-2012 has been considered. The analysis of trend in MFI indicates that banking sector in Bangladesh demonstrated a moderate level of stability in the recent years despite of dismal performance of State Own Commercial Banks (SCBs) and Development Financial Institutions (DFIs). The Private Commercial Banks (PCBs) and Foreign Commercial Banks (FCBs) stand on sound footing in resilience in terms of MFI's performance. The paper finds that correlation coefficient between Nonperforming Loan (NPL) and Gross Domestic Product (GDP) is -0.67 for the sample period 1991-2012 implying that increase of GDP pushes down NPL that ensures financial stability in banking system in Bangladesh. The correlation coefficient between real lending rate and GDP is -0.52 and the correlation of real lending rate with NPL are 0.63 which implies that prevailing high lending rate is distressing for the banking system. An estimated correlation coefficient between Current Account Balance (CAB) and NPL is -0.72 which implies a good position or surplus in CAB leading to decrease NPL in the banking system which helped financial stability in the recent time.