THE PROFITABILITY OF BANKING SECTOR IN OF MONETARY POLICY: A STUDY ON LISTED COMMERCIAL BANKS IN BANGLADESH

Abstract

Monetary policy is the policy by which the government of a
country control supplies of money in an economy which is
announced by the central bank for every six months. Central
Bank carries out monetary policy by the banking system of a
country. Central Bank uses Bank rate; Cash reserve ratio and
open market operation to control the availability of funds in an
economy. Within these three instruments, the cash reserve ratio
is directly linked to the commercial bank's profitability. Every
commercial bank maintains a cash reserve ratio against their
demand & time deposits. Being changes in the cash reserve ratio
banks profit level may increase or decrease. The prime intention
here is to show the impact of monetary policy, especially Cash
Reserve Ratio on the commercial bank's profitability. This study
covers only listed commercial banks in Bangladesh. As sample
researcher purposively selected 15 listed commercial banks that
have available information. Results revealed that CRR negatively
related to Return On Assets (-0.1133), Return On Equity (-0.0577) as well as Return On Investment (-0.0504). This means
the bank's profitability declined due to the increase in cash
reserve ratio (CRR). Again regression analysis outlined that the
cash reserve ratio negatively impacts on the profitability of
studied commercial banks in Bangladesh, which is statistically
significant at the 10% level. Researchers proposed that
Bangladeshi commercial banks will design their profitability plan
by considering monetary policy tools, particularly the Cash
reserve ratio