Liquidity Risk and Performance: A Study on the Banking Sector of Bangladesh

Abstract

Purpose: The aim of the study is to find out relationship between liquidity risk and bank performance. This study has been conducted based on secondary data collected from the annual reports of selected banks. Design: This is a causal study where dependent variable is bank performance (BP) which is the combination of two factors namely return on assets (ROA) and return on equity (ROE). Independent variables are current ratio (CR), loan to deposit ratio (LDR) and liquid asset to total asset ratio (LATAR). The study has been conducted on secondary data that has been collected from the annual reports of the banks. Multiple regression analysis has been applied to actualize research objectives. Findings: The study shows that there is no significant relationship between current ratio and bank performance, on the other hand effect of loan to deposit ratio and liquid asset to total asset ratio have statistically significant relations with bank performance. The study identifies negative relationship between bank performance and loan to deposit ratio; bank performance and liquid asset to total asset ratio.