Paper title: Bank Capital on Lending and Profitability: Empirical Evidence on Commercial Banks in Bangladesh
Abstract: This paper empirically investigates the effect of bank capital on lending and profitability of commercial banks in Bangladesh. The capital adequacy ratio (CAR) is employed to assess the capital strength of banks, taking into account both Tier-1 and Tier-2 capital components. Loan to total asset is used as the measurement of lending, whereas, for measuring Return on Assets (ROA), profitability is used. OLS, RE, FE and FGLS econometric models are applied. To deal with endogeneity, the IV approach is applied as well. These different models provide consistent results. Capital appears to negatively impact both lending and profitability, according to the findings. This is consistent in both situations where capital is measured by Tier-1 and Tier-2 capital, and capital is measured by only Tier-1 capital. Hence, this paper suggests that the bank's capital negatively affects the lending and profitability of commercial banks operating in Bangladesh. Key words: Bank capital, Risk weighted asset, BASEL III, Lending, Profitability
