DETERMINANTS OF BANK-SPECIFIC, BANK-RISK AND BANK STABILITY OF THE BANGLADESHI CONVENTIONAL BANKS

Abstract

The primary objective of this research is to analyze the effect of bank-specific and risk determinants on conventional banks' z-scores in Bangladesh from 2011 to 2021. This study used panel linear regression and panel corrected standard error (PCSEs) to estimate the model. Capital adequacy, asset quality, income diversification, bank competition, managerial efficiency, and profitability (return on equity) are used as proxies for bank-specific and liquidity risk; Sensitivity to marketing risk is used as a proxy for bank risk, while the bank size is used as a control variable and Z-scores are used as a proxy for measurement of bank stability. The main results indicate that capital adequacy, bank competition, and managerial efficiency are negative, but asset quality, income diversification, and profitability (ROE) are positively related to the Z-score. The results further indicate that determinants of bank risk, such as liquidity risk and marketing risk, negatively impact the Z-score. The control variable bank size has a positive impact on the Z-score. Based on our results, authorities in Bangladesh may develop rules for managing operations and ensuring bank stability.