Bangladesh Bank Training Academy Journal

Abstract

This paper explores the relationship between banks' liquidity and profitability by considering four types of banks (State-owned Commercial Banks, Private Commercial Banks,Foreign CommercialBanks andDevelopmentFinancialInstitutions) operating in Bangladesh. We apply fixed effects model (FEM) by using data of these banks for the period 1997-2014. Thepaperfinds that the expenditure-incomeratio and excess liquidity ratio have negative impacts on banks' profitability (return on asset). The negative relationship of expenditure-incomeratio and excess liquidity with bank'sprofitability is a major concernfor the policy makers of the banking industry of Bangladesh.