BUS 485 .. Business Research Methods

Business research method
Independent University, Bangladesh
The Impact of BASEL II Implementation on the Financial
Performance of Private Commercial Banks of Bangladesh
Semester: Summer 2017
Course Title: Business Research Methods
Course Code: BUS 485
Section: 04
Submitted To: Dr. Samiul Parvez Ahmed
Assistant Professor, IUB
Submitted by: Group Venus
Date of Submission: July 25, 2017
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Group Members
Name ID
Syed Wafi Haider 1310897
Sk Sarowar Baksh Niloy 1310769
Faizanur Rahman 1310183
Abu Sadat Md sayem 1311069
Md Nahid Hossen 1310828
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Letter of Transmittal
July 25, 2017

Dr. Samiul Parvez Ahmed
Assistant Professor, School of Business
Independent University, Bangladesh (IUB)
Subject: Submission of Report Impact of Basel II Implementation on

Financial Performance of Private Commercial Banks of Bangladesh
Dear Sir,
With due respect we, the undersigned students of BBA have Completed report on
Impact of Basel II Implementation on Financial Performance of Private
Commercial Banks of Bangladesh under the course: Business Research Method
(BUS 485).
Though we are in learning curve, this report has enabled us to gain insight into the
core fact of Impact of Financial Performance of Private Commercial Banks of
Bangladesh. So it becomes as an extremely challenging and interesting experience.
Thank you for your supportive consideration for formulating an idea. Without your
Inspiring this report would have been an incomplete one.
Lastly we would be thankful once again if you please give your judicious advice
on effort.
Yours sincerely,
Group Members of Team Venus
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Acknowledgement
At first, we would like to thank the Almighty for giving us this opportunity to
study in one of the most renowned university, Independent University, Bangladesh
(IUB) and study in their very reputed School of Business. To make this topic
successful, we want to show our gratitude to those who have lent their hands of
cooperative participation. We want to convey our special thanks to our course
instructor, Dr. Samiul Parvez Ahmed for giving us such an opportunity, which will
enhance our knowledge about financial analysis of commercial bank in
Bangladesh. Without his guidance and help, the preparation of this report would
have been difficult.
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Executive Summary
This report covers study on Financial Performance of Private Commercial Banks of

Bangladesh. We choose 5 Commercial banks with their 5 years data. We use recent years data
and time period is 2012 to 2016.We are analyzing the bank financial performance based on the
Impact of BASEL II Implementation sector of Bangladesh. Our regression equation has five (05)
independent variables which are CCTA, TCRWA, CIR, AT and DTA and dependent variable is
ROA. This study aimed to explore how much effect financial performance of Bangladesh.
The annual reports of all the five commercial banks for the period of five years are taken from
the Dhaka stock exchange used for the source of data. Regression model was used for identifying
the relationship between the dependent and independent variable. This report is compiled about
the topic knowledge sharing hypothesis, literature review, methodology, data analysis etc. This
report was done with the help of a journal. Finally the last portion of this report is about the
findings, limitations, conclusion and references. In this part, we described the limitations we
faced during our research. The study of our goal is to find out the significant relationship of
financial performance of banking sector in Bangladesh.
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Table of Contents
Subject: Submission of Report Impact of Basel II Implementation on Financial Performance of Private

Commercial Banks of Bangladesh.......................................................................................................... 3
I. Introduction .................................................................................................................................... 9
II. Problem Statement........................................................................................................................ 10
III. Purpose of the Study.................................................................................................................. 11
IV. Background................................................................................................................................ 12
V. Literature Review .......................................................................................................................... 13
a. Return on Asset (ROA): (Dependent Variable) ............................................................................ 13
b. Core Capital to Total Assets (CCTA) (Independent Variable) ....................................................... 15
c. Relationship between Core capitals to Total Assets Ratio (Tier-1 Leverage Ratio) and Return on
Assets (ROA) ...................................................................................................................................... 17
d. Total Capital to Total Risk Weighted Assets (TCRWA) ................................................................. 18
e. Relationship between Total Capital to Risk-Weighted Assets Ratio (TCRAR)/Capital Adequacy
Ratio (CAR) and Return on Assets (ROA) ............................................................................................ 19
f. Asset turnover (AT) .................................................................................................................... 20
g. Relationship between asset turnover (AT) and return on asset (ROA)......................................... 21
h. Debt to Total Assets (DTA): (Leverage) ....................................................................................... 22
i. Relationship between Debt to Total Assets Ratio and Return on Assets (ROA) ........................... 24
j. Cost Income Ratio (CIR).............................................................................................................. 24
k. Relationship between Cost Income Ratio (CIR) and Return on Assets (ROA) ............................... 25
VI. Methodology ............................................................................................................................. 27
VII. Conceptual Framework .............................................................................................................. 28
a. Equation is: ............................................................................................................................ 28
b. The equation model is ............................................................................................................ 28
c. Our Model.............................................................................................................................. 29
d. Dependent Variable ............................................................................................................... 30
e. Independent Variable............................................................................................................. 30
VIII. Research Question and Hypothesis ............................................................................................ 31
IX. Research design ......................................................................................................................... 32
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X. Sampling Design ............................................................................................................................ 34

XI. Data Collection .......................................................................................................................... 35
XII. Descriptive analysis.................................................................................................................... 36
XIII. Correlation................................................................................................................................. 38
XIV. Regression Equation: ................................................................................................................. 42
XV. Joint significant test ................................................................................................................... 44
XVI. R-squared .................................................................................................................................. 44
XVII. Adjusted R-Squared ................................................................................................................... 44
XVIII. Significance of the Study ........................................................................................................ 45
XIX. Limitation of the study ............................................................................................................... 45
XX. Conclusion ................................................................................................................................. 46
XXI. References ................................................................................................................................. 47
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The Impact of BASEL II Implementation on the

Financial Performance of Private Commercial Banks of
Bangladesh
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I. Introduction
Bank is a financial intermediary. It channels the resource from the surplus unit to the shortage
unit continuously. It is expected sustainable intermediation function, banks need to be profitable
for Basel II which is through as the second of Basel Committee on Bank Supervision's
recommendations, in Basel I we basically focus on credit risk the main purpose of Basel II is to
generate standard and regulation which actually focus on how much capital financial institution
must have to put aside. All the bank actual need to keep aside the capital to reduce the risk
associated lending practices and investing. Basel II tries to integrate Basel capital standards with
national law and regulations, by setting the minimum capital requirements of financial
institutions with the goal of ensuring institution liquidity
In order to monitor the overall banking sectors performances and tie up financial institutions
especially banks under the specific rules and regulations, the standard with the bundle of
regulations are following globally is known as BASEL II. BASEL II is the second accord of
BASEL I under the actively regular observation of BASEL Committee on Bank Supervision.
The major purposes of BASEL II are covering up the risks which are shown during the banking
operations and assuring the ability of liquidity. Initially introduced on the year of 2004, BASEL
II was first implemented on year 2008. BASEL II accord is standing up with three pillars Pillar
1 covering risk-weighted asset calculations along with minimum capital requirements for risks
(Credit Risk, Market Risk and Operational Risk), Pillar 2 includes the supervisory review
process ensuring the specific bank about its capital adequacy to meet all kinds of risks and Pillar
3 contains the disclosing step where adequate information about some specified bank are
disclosed among the stakeholders in order to ensure market disciplines
Recently, the importance of implementing the Basel II framework by banks has been reiterated
following the recognition by the financial regulators that the liquidity is as important to the
financial stability of the banks as are capital requirements. Basel II better mirror the model of
risks banks face in an increasingly market-based credit mediation process. It ensures sustained
improvements in the risk measurement, control of internationally active banks and deepens the
soundness and stability of the international banking system against the fundamental risks banks
take. The main thrust of Basel II therefore is to address the financial innovation, which had
occurred in recent years. Meanwhile, despite the Basel II objective of aligning banks regulatory
capital with the risk management of banks and its relevance to the Bangladeshi banking industry,
its ability to contain and address future systemic banking crisis has been quizzed by financial
analysts in recent times.
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II. Problem Statement
The introduction of Basel II as well as its implementation by banks in recent times has aroused
the interest of the academic researchers, bankers, financial analysts and regulatory authorities. A
review of extant literature on Basel II also indicates that controversy exists among financial
scholars and academic researchers on the cyclical nature of the Basel II and the impact it may
have on the financial performance of banks. They report that Basel II can never be a panacea for
the future financial crisis because of its pro cyclical nature. Here is the global financial crisis
revealed the inadequacy of Basel II capital requirements for banks and exposed its loopholes.
The first proposal is anxious with the quality, transparency and consistency of the capital
foundation to confirm that high-quality capital is present to absorb damages.
Leverage and capital ratios are not supplementary. They are similar, if not the capital ratio is
controlled on the basis of risk-adjusted assets rather than total assets. The leverage ratio is more
specific, easier to calculate and more easily to understandable than the risk-adjusted capital ratio.
The question that contains is whether or not the way forward should be guided by the Basel
Committee, it required regulatory changes are introduced as a Basel accord and implemented on
globally.
Basel II helps to changes in the law and supervision of banks, risk management, and other
aspects of banking practice, it changes considered as one of the most important elements of the
worldwide financial mention system. This paper shows the implementation of Basel II there risks
due to the changes related and features which may affect international trade in banking services.
The new framework potential effects on risk management within an individual firm competition
between firms and the financial sector and the future of supervision are mostly long-term accrual
of the economic system (And & Corn, 2008).
Thus the problem statement is To investigate whether there is a relationship between core
capital / total assets, total capital / risk weighted assets, asset turnover, leverage, operating
efficiency (cost income ratio) with that of return on assets of a financial institution for a given
period and linking all this variables together to find out the financial change and study the
financial performance when Basel ii is implemented in commercial bank.
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III. Purpose of the Study
1. Identify the basic of the variables and Profitability influencing its effects in the banking
sector.
2. To confirm that capital allocation is more risk sensitive
3. To secure that credit risk, operational risk and market risk are quantified based on data
and formal techniques
4. To search new studies or discoveries based on the past report.
5. To ensure that banks operate in a safe and sound manner
6. This approximate impact related to the profitability of Financial Institutions
7. To analysis commercial banks risk management.
8. All exposures after conversion into assets and after having received supervisory risk
weights according to their degree of risk
9. To analyze the association between the independent and dependent variables.
10. To develop a theoretical frame performance for our research.
11. To insist hypothesis and research finding through developing a regression model.
12. To make a research design for the plot and structure of testing.
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IV. Background
Bangladesh has an expanding economy which makes for a healthy banking sector. The Banking
industry has booming over the years making double digit profit percentages. Banks have
sustained growth even through cut throat competition and maintained attractive returns to their
shareholders. According to Bangladesh Bank (2017) there are a total of 56 commercial banks
operating within the country among which 6 are state owned and operated. Bangladeshs
economic expansion is intuitively pleasing as we observe foreign investment even in the banking
sector with 9 foreign commercial banks operating within the country. All the 56 commercial
banks in Bangladesh are governed by the Bangladesh Bank which is the central bank of
Bangladesh. Bangladesh bank was set up 1972 following their independence, Bangladesh bank
now has 10 offices within the country located at Rangpur, Motijheel, Sadarghat, Bogra,
Chittagong, Khulna, Rajshahi, Barisal, Sylhet, and Mymensingh.The financial sector in
Bangladesh has witnessed quite the overhaul and is gearing up towards a more modern and
efficient system which can support greater investments and sustain the growth of the country.
For the purpose of the research the group will be looking into some of the local banks in
Bangladesh which are as follows:
1) Standard Bank
2) Jamuna Bank
3) Marcentile Bank
4) Uttara Bank
5) IFIC Bank
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V. Literature Review
A literature review is an evaluative report of information found in the literature related to

selected area of study. The review should retails summaries, clarify and evaluate this literature. It
should give a theoretical foundation for the research and help to understand the nature of
research. Works are inapposite that should be rejected and those which are also borderline should
be looked at critically.
A literature review is originally more than the search for all the information; it goes beyond
being a descriptive annotated bibliography. All works included in the review must be read,
evaluated and analyzed, but relationships between the literatures must also be articulated and
identified, in relation to field of research.
In the following Conceptual Framework only one dependent variable is Return on Assets (ROA)
and rest of the five variables are independent variables. The description of each variable and
research questions relating dependent variable with each independent variable are given below:-
a. Return on Asset (ROA): (Dependent Variable)
According to (Golin J. , 2001; P & S, 2005) contended that ROA is a standout amongst the most
paramount measures of profitability in late banking literature.
Return on Assets (ROA) is mostly used as a tool to measurement the rate of return on total assets
after interest expense and taxes, (Brigham, 2001:109).
The Highest Return on Assets (ROA) it shows that the better the company's performance and the
greater rate of return on investment. (Riyanto, 2001:267).
Harahap (2002: 304) mention the profitability of a company's capability to create earnings for a
given period.
Sartono (2001:64) mentions that the Return on Assets (ROA) is one of the beneficially ratio that
indicate how useful the company conduct which produce a profit.
The profitability of a bank regulators, bank, and analysts have used return on assets according to
Gilbert and Wheelock, 2007; Mostafa, 2007; Christian et al.,2008 mention that (ROA) to assess
industry forecast learning and performance in market structure as inputs in statistical models
which is predict bank defeat and mergers and also for a variety of other motivated there is a
measure of profitability is desired .On the other side return on assets measures the efficiency of
the company to confirm through its outcome renewal and payment of assets .The return on assets
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concern an internal rate of return which higher than the cost of capital mean a higher value of the
company (Stancu, 2007, p. 759).
Dependent variable is actual usually used in the study of bank profitability as a return on assets
(ROA), this study use ROA as dependent variable where ROA is the ratio of net income to total
assets. According to Naceur, 2003 .the ROA measures the profit generate from the asset and
mirror how well the bank's regulation that uses real investment capital to generate profits.
Return on Assets (ROA) = Net Income/ Total Assets
Sometimes, Return on Assets (ROA) is calculated by division of Net Income and Average Total
Assets. The Average Total Assets are those kinds of assets which value is calculated by
averaging the total assets of beginning year and total asset of ending year.
Average Total Assets = (Total Assets of Beginning Year + Total Assets of Ending Year) 2
Since all assets are either funded by equity or debt, some investors try to neglect the costs of
acquiring the assets in the return calculation by adding back interest expense in the formula. It
only makes sense that a higher ratio is more helpful to investors since it shows that the company
is more effectively managing its assets to produce greater amounts of net income. So a positive
Return on Asset ratio also usually indicates an upward profit trend as well. ROA is also
necessary for comparing companies in the equivalent industry as different industries use assets
differently. It is an important to test the relationship between capital structure and the
profitability of the Bank to make financial structure decisions. We work on ROA, we found that
there is a positive and significant relationship between the variable of a bank. It measures the
banking financial efficiency in deploying and utilizing its assets to generate sales revenue. By
way of sales revenue has an effect on financial performance and since asset turnover, total
capital, core capital, leverage, operating efficiency is related performance.
According to Elizabeth and Ellot, 2004 said that all financial performance measure as interest,
return on assets, margin, and capital adequacy are positively correlated with customer service
quality.
Return roughly on Assets (ROA) which is nimble of producing tall levels of corporate profits is
more than the Return on Assets (ROA) is low (Ang, 2001:231).
According to Prastowo (2002:86), Return on Assets (ROA) which is the measure of

effectiveness of the company in make profits by exploiting its assets. This ratio may give an
symbol of good or bad management in implementing cost control or management of property
Sometimes, Return on Assets (ROA) is calculated by division of Net Income and Average Total
Assets. The Average Total Assets are those kinds of assets which value is calculated by
averaging the total assets of beginning year and total asset of ending year.
Average Total Assets = (Total Assets of Beginning Year + Total Assets of Ending Year) 2
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b. Core Capital to Total Assets (CCTA) (Independent Variable)
Core capital is the part of a financial institution's capital that form of equity and disclosed
reserves. The other part, which includes loan loss provisions, undisclosed reserves and
subordinated debt, is called supplementary capital. In terms of the capital adequacy standards
established by the Bank for International Settlements, core capital is termed Tier 1 capital, and
supplementary capital Tier 2.
Total Asset is the final amount of all gross investments, cash and equivalents, receivables, and
other assets as they are presented on the balance sheet.
The Core Capital mostly known as Tier-I Capital is the one of the elements of Total Equity
Capital. Another element of Total Equity Capital or Total Capital is Supplementary Capital
which is also known as Tier-II Capital. Under the Basel II regulations,
Core Capital or Tier-1 Capital is consisting with the common stocks and disclose reserve which
is commonly known as Retained earnings (Panagopoulos, Y. & Prodomos, V., (2009), Bank
Lending, Real States Bubbles and Basel II).
Core capital is actual often insufficient to cover losses arising from both loan and securities
portfolios. The increasing vulnerability of the banking sector and important pressures from
policy makers, markets and regulators highlighted the necessity to strengthen banks capital base
and it reduce their exposure. While new oppressive regulatory requirements for financial
institutions call for higher capital levels (BIS, 2010a), banks actual try to operate above the
minimum regulatory solvency ratios with an additional capital buffer in order to minimize the
risk of breaching the regulatory border (ECB, 2007; Harding et al., 2013)
Core capital actual refers to the volume of capital holding of a financial institution in line with
the financial institutions regulators requirements (Obiero, 2002).
Berger, Herring and Szego (1995) define the capital requirement as the capital ratio which
maximizes the value of the bank in the default of moderator capital requirement and all the
regulatory mechanisms that are used to make them and in the presence of the rest of regulatory
shape that protects the safety and soundness of banks.
A bank which higher core capital is in a position to debt more loans and collect more deposits
from the public because the law pegs lending to any one borrower, a group of borrowers and
connected lending to the amount of core capital (Gudmundson, Ngoka&Odongo, 2013).
Halahleh and Matarneh (2012) they impact that the financial performance in capital adequacy in
accordance which requirements of the Basel and day by day increasingly important hedge capital
adequacy in financial crises
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On the other hand, Total Asset of a banking organization is the consistence of both on-balance
sheet and off-balance sheet assets. Majorly off-balance sheet assets are omitted in Total Assets
consideration. The ratio of banks Core Capital or Tier-1 Capital and the Total Assets of banking
organization is called Tier-1 Leverage Ratio commonly Leverage Ratio. Leverage Ratio is the
simple measurement of observing the stability of banking organization. (Lamba, R. &
Subramanian, A.,(2015),. In Leverage Ratio,Tier-1 Capital is calculated as numerator and Total
Assets is denominator. (Allen & Overy, (2014), Capital Requirements Directive IV Framework,
Leverage Ratio)
Tier-1 Leverage Ratio = Tier-1 Capital/Total Assets
In order to avoid financial institutions from estimating risk-weighted assets by using various
formulas, the Basel Committee of Bank Supervision (BCBS) initially introduced the Leverage
Ratio in other word, Tier -1 Leverage Ratio in the year of 2010. (Morgan, J.P. (2014),
Leveraging the Leverage Ratio)According to the journal A Basel perspective on bank leverage
by authors Petersen, M.A., Maruping, J.B., Mukuddem-Petersen, J. and Hlatshwayo, L.N.P,
(2013), leverage in banking sector mostly depends on the restrictiveness of banking regulations.
Excessive Leveraging is one of the highlighted factors for the worldwide financial hazards in
banking institutions. In order to solve this global banking issue, the non-risk-based-capital
measurement is proposed by international community, that measurement is the Leverage
Ratio.(DHulster, K. (2009), The Leverage Ratio, A New
Binding Limit on Banks) also, the higher Tier-1 Capital makes bank leveraging more favorable,
on the other hand, the increases of banks Total Assets (also can be referred as Total Unweighted
Assets) results the decrease of Leverage Ratio. The banking organization, which is willing to be
more leveraged, their Leverage Ratio will be low. Petersen, M.A., Maruping, J.B., Mukuddem-
Petersen, J. and Hlatshwayo, L.N.P, (2013) suggest that, the leverage ratio can be easily
implemented for those financial institutions, which are not wanted to depend on risk-sensitive
capital requirements. During the disclosure, the banking organizations have to disclose the
Leverage Ratio along with Capital Adequacy Ratio. (Hall, M.J.B (2006).
The natural logarithm of total assets actual used actual indicate the size of the bank similarly to
several studies (Pathan et al., 2007; Pathan et al., 2004, Azofra and Santamaria, 2011).
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c. Relationship between Core capitals to Total Assets Ratio (Tier-1 Leverage

Ratio) and Return on Assets (ROA)
Tier 1 (core) capital in Basel I form of the most liquid and reliable capital on a banks balance
sheet, (BCBS, 1988).
Tier 1 capital includes
(a) Permanent shareholders equity in the form of common stock, perpetual non-cumulative
preferred stock and minority interests in equity accounts of reduced subsidiaries
(b) Disclosed reserves similar as retained earnings, share premiums
(c) Qualifying
Return on Assets (ROA) not only measuring the profitability of the banking organization, but
also measuring the usefulness of the organization by creating the profit of the banks assets.
Return on Assets discovers the total performance of the banking sectors by protecting the income
statement. (Hagel III, J., Brown, J.S., Samvlova, T. & Lui, Michael (2013), Success or Struggle:
ROA as a true measure of business performance).In the journal.
Differences in Return on Assets among Community Banks, By Kupiec, P. & Lee, Y. (2012)
mentioned that the bank regulatory leverage ratio is positively concern with the return on assets
(ROA). Because generally Net income is determined through net earnings before taxes and
interests deducts interest expenses and that net income is divided by the Total Assets of the bank.
By deducting interest expenses from net income before taxes and interests, this factor shows the
profitability of banking organizations. And also, higher rate of leverage ratio results lower less
amount of debt.
According to Goddard et al. (2004), the concern between profitability and capital must be
negative. Overcapitalization of bank is usually a sign of investment opportunities unused, which
is generally in line with the results found by Thakor (1996).
The capital increase allows the bank to invest more aggressively because of the convergence of
capital that may possible lead to a higher return on assets (Maro and Minza, 2008).
Muthuva (2009)in a study of commercial banks in Kenya for the period 1998 to 2007 used return
on assets as proxies for bank profitability. The study revealed that profitability is positively
related to the core capital ratio and tier 1 risk based capital ratio. Olalekan and Adeyinka (2013)
while studying deposit taking banks in Nigeria for the period 2006 2010found similar results; a
positive and significant relationship between CAR and profitability of banks. Additionally, San
and Heng, (2013) in a study of Malaysian commercial banks found similar result.
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Gropp and Heider (2010) asserted that more capitalized banks are more profitable because they
have sufficient financial resources to invest in high return investments which generate higher
returns for the banks..
According to the following journal, the relationship between Core Capital to
Total Assets ratio (Tier-1 Leverage Ratio) and Return on Assets (ROA) is positive.
d. Total Capital to Total Risk Weighted Assets (TCRWA)
The force of FDICIA regulation on banks long-term targets for the Tier 1 ratio actually
overcome that for total capital and that convergence of the Tier 1 ratios to its for long-run
average which is somewhat quicker Aggarwal & Jacques study (1991-1993).
Total Capital, in general termed as Total Equity Capital of the banking organization comprises
with the organizations two types of capital and they are Core Capital and Supplementary
Capital. Core Capital defines as Tier -1 Capital is mainly the consistence of common stocks
and retained earnings on the other side supplementary Capital termed as Tier -2 Capital
contains banking organizations the subordinated debts and preferred stocks. (Panagopoulos, Y. &
Prodomos, V., (2009), Bank Lending, Real States Bubbles and Basel II).
Total Capital or Total Equity Capital = Tier -1 Capital (Core) + Tier -2 Capital (Supplementary)
Jin et al. (2011) and Hossain et al. (2013) mention that take the capital adequacy ratio which can
be defined as equity capital over risk-weighted assets, to be a proxy for a banks risk.
LEDO, M. (2011) Mention that towards more consistent, though diverse, risk-weighted assets
across to the Bank.
Risk-weighted assets are the estimation of the amount of bank institutions assets in order to
dealing with risks. (Fatima, N. (2014), Capital Adequacy is a Financial Soundness directing of
Banks and it decreasing the particular portion of risk-weighted assets and financial institutions
can rise the Capital to Risk Weighted Assets ratio or Capital Adequacy Ratio. (Das, S. & N.R.
Sy, A. (2002)
Total Capital to Risk-Weighted Assets Ratio, in simple Capital to Risk-Weighted Assets Ratio
(CRAR) is mostly known as Capital Adequacy Ratio (CAR) is the division of the banks entire
capital with banking sectors risk-weighted assets (Fatima, N. (2014))
Capital Adequacy Ratio = (Tier-1 Capital + Tier-2 Capital)/Risk-Weighted Assets
Bateni, L., Vakilifard, H &Asghari, F. (2014), the Influential Factors on Capital Adequacy Ratio
in Iranian Banks
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Capital Adequacy Ratio (CAR) or Capital to Risk-Weighted Assets (CRAR) traces that if
financial institutions are in a good health conditions or not. According to the journal of Fatima;
N. (2014) Capital Adequacy Ratio (CAR) helps to create the shield for banking organization in
order to protect the bank from excessive leveraging. Not only Capital Adequacy Ratio (CAR)
defends banking sectors from excessive leverage, but also secures banks from the insolvent
difficulties. Also, Capital Adequacy Ratios aim is maintaining the stability of banking
organizations. Banks loan growth issues are slightly influenced by the Capital Adequacy Ratio.
Bateni, L., Vakilifard, H &Asghari, F. (2014).
e. Relationship between Total Capital to Risk-Weighted Assets Ratio

(TCRAR)/Capital Adequacy Ratio (CAR) and Return on Assets (ROA)
The Return on Assets (ROA) is one of the measurements of profitability via estimating the net
income deducts tax and interest is divided by the total assets. (Hagel III, J., Brown, J.S.,
Samvlova, T. &Lui, Michael (2013), Success or Struggle: ROA as a true measure of business
performance). According to the article The Influential Factors on Capital Adequacy Ratio in
Iranian Banksby Fatima, N. (2014), the favorable rate of Capital Adequacy Ratio (CAR) or
Capital Risk-Weighted Assets Ratio (CRAR) contribute to improve financial institutions
profitability by absorbing institutions losses and cost funding reduction. On the other hand,
higher rate of ROA results higher profitability in banking sectors. These factors indicate about
the positivity in the relation of CAR and ROA. Also, Bateni, L., Vakilifard, H &Asghari, F.
(2014) mentioned in their article that Return on Assets (ROA) has a positive relationship with
Capital Adequacy Ratio (CAR) as banking organizations want to acquire higher rate of return by
increasing the risk-rate in organizations assets.
According to Berger (1995) and Dermerguc-Kunt and Huizingua (1999) find a positive
relationship between Capitalization and Bank Performance. Naceur (2003) find a positive
relationship between Capital and ROA. Here results shows that well capitalized banks also help
lower expected bankruptcy costs for their customer and themselves, which minimize their cost of
capital. The bank which means a sound capital position is able to look for business benefit more
flexibility and effectively and that deal with matter arising from sudden losses thus acquiring
increased profitability Athanasoglou et al. 2005)
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f. Asset turnover (AT)
The asset turnover ratio is an efficiency ratio which measures a company's force to produce sales
from its assets by balancing net sales with average total assets, it shown how efficiently a
company can use its assets to procure sales.
Companies for their low profit margins overlook to have high asset turnover, while those with
high profit margins have low asset turnover. Companies in the retail industry look to have a very
high turnover ratio due principally to competitive pricing and cutthroat "Sales" is the value of
"Sales" or "Net Sales" from the company's income statement.
"Average Total Assets" is the average of the values of "Total assets" from the company's balance
sheet in the beginning and the end of the fiscal period. It is through by adding up the assets at the
beginning of the period for the assets at the end of the period it dividing that number by two.
Here ratio of the value of a companys sales or revenues generated relative to the value of its
assets. The Asset Turnover ratio can often be used as an indicator of the efficiency with which a
company is deploying its assets in generating revenue.
Asset Turnover = Sales or Revenues / Total Assets
Using data from a group of Compustat companies over a period from 1977 to 1986, Selling and
Stickney examined total asset turnovers and operating profit margins as they related to returns on
assets.
James Clausen (2009), He denotes that about the total asset ratio. The calculation uses two
factors, total revenue and average assets to determine the turnover ratio. When calculating for a
particular year, the total revenue for that year is used. Instead of using the year ending asset total
from the balance sheet, a more accurate picture would be to use the total average assets for the
year. Once the average assets are determined for the same time period that revenue is compared,
the formula for calculating the asset turnover ratio is-
Total Revenue / Average Assets = Asset Turnover Ratio
The total asset turnover ratio measures the ability of a company to use its assets to generate
sales.(Kieso, Weygandt, Warfield ,2001).
According to Ibam (2007) fixed asset turnover ratio looked at asset over time and compares the
ratio to that of competitors. This gives the investor an idea of how effectively a companys
management is using fixed asset. It is an over measure of the produce of a companys fixed
assets with respect to generating sales. The higher the number of times turned is the better.
Investors expected for consistency or increasing fixed assets turnover rates as positive balance
sheet investment qualities (Ibam, 2007).
Page 20 of 49
According to Sayeed and Hogue (2009) the impact of assets and liability management on
profitability of public and private commercial banks in Bangladesh, generally speaking, the
higher the asset turnover ratio which is the good for the company is performing, higher ratios
indicate that the company is operating more revenue per dollar of assets. This ratio can vary
widely from one industry to the next.
Asset turnover is a key component in a usually used measure of profitability for return on assets.
Return on assets measures how well a company use assets to raise profit. The formula for return
on assets is Net Income divided by Average Total Assets.
The higher the ratio, the more sales that a company is conducting founded on its assets. So a
higher ratio would be preferable to a lower one. Various industries cannot be compared to one
another as the assets necessary to performing business activities will vary.
Another breakdown for the formula for asset turnover ratio is companies that are using their
assets now for future sales. It is more of discloser for companies that sale is extremely profitable
products but not that often.
g. Relationship between asset turnover (AT) and return on asset (ROA)
According to Patricia Fairfield and Teri Lombardi Yohn they have made a study of the return on
assets for the context of making predictions. They shown that disaggregating return on assets
into asset turnover and profit margin wont take step for rises report for predict the change in
return on assets.
According to Beneish et al. (2001), and Fairfield, Whisenant and Yohn (2003), into others have
recognize a rather strong negative relationship between profitability and investment intensity.
Khalid (2012) proved the relationship between profitability nexus and the asset quality
management proxies. Using the return on assets and profitability ratios as proxies for bank
profitability for the period 2006-07 to 2010-11, operating performance of the sample banks is
calculated with the help of financial ratios.
According to James Clausen (2009), explain that about the total asset ratio. The calculation uses
two factors they are average assets and total revenue to determine the turnover ratio
Asset turnover ratio is. Total Revenue / Average Assets = Asset Turnover Ratio.
According to Hashemi and B. Oven (2011) explain the regards the measurement of the
information content of financial ratios and accruals of the stocks of companies listed on the stock
exchange expose indicate important earnings per share, here the ratio of return on assets,
working capital assets, net profit on sales and asset turnover in the stock price
Page 21 of 49
Skolnik used the non-financial firms in the S&P 500 and a time frame of 1989 through 1999 to
study the relationship among operating profit margins, operating returns, and total asset
turnovers. He discover that the total asset turnover ratio was reduce on the study period while the
operating profit margin ratio was rising. So, he found statistically important negative correlations
between total asset turnovers and operating profit margins.
The return on assets (ROA) is one of the most thoroughly used for profitability ratios because it
is related to both profit margin and asset turnover it shows the rate of return for both creditors
and investors of the company. ROA shows how well a company controls its costs and utilizes its
resources.
Return on Assets = Net Profit Margin Asset Turnover
A better name for ROA is return on average assets, since it is more descriptive in how it is
calculated.
So a company can have a high return on assets even if it has a low profit margin because it has a
high asset turnover. Grocery stores are a good example of a business with low profit margins but
high turnover.
h. Debt to Total Assets (DTA): (Leverage)
Leverage is an asset to insistence better terms of agreement for building spread loan for example
smaller down payments or lower interest rates. Leverage means the fixed undertaking of the
organization (Huijie Bao 2010).The fixed undertaking of the organization can be serial within
two different groups they are fixed cost of operations and fixed cost of servicing. The fixed cost
of operations is regarding to the investment judgment and the fixed cost of servicing with notice
to the financing setting (Hashem Nezhad 2013). Here revenues are than the variable Cost and
fixed Cost that is called favorable or otherwise unfavorable. Operating leverage is linked with
the acquirement of assets where the financial leverage is combined with the Financing of
activities. The operating leverage is concerned to the operating risk of the investments it means
that fixed cost of activities of the drive (Bauer (2004).The name of the financial leverage is
trading on Equity explain the relationship in between the application of the fixed charge of funds
in the capital structure and Earning per share. It is the leverage analysis the relationship in
between the financing decision and investment decision. Operating leverage is a relationship in
between the Sales and Earnings before interest and taxes. Financial leverage is a relationship in
between the Earnings before interest and taxes and Earnings per share. The operating leverage is
concerned to the operating risk of the investments its means that fixed cost of operations of the
enterprise (Taire 2012). It that highly the fixed cost of operations means that greater the
operating risk. It means that greater will be breakeven point. The greater volume of fixed cost of
operations is found to be fair only during the occasion of greater volume of earnings, if not
Page 22 of 49
otherwise the dominance of fixed cost of operations is establish to be untoward to elevate the
volume of EBIT. The name of the financial leverage is trade on Equity it describe the
relationship in between the application of the fixed charge of capital in the capital structure and
Earning per share (Sajadi et al. (2011). It is the leverage analysis highlights the relationship
between the financing decision and investment decision.
The ratio of banks Debt ratio is also known as debt to assets ratio. It is a ratio which measures
debt level of a banking organization as a percentage of its total assets. It is calculated by dividing
total debt of a banking organization by its total assets. Debt ratio finds out the percentage of total
assets for financed by debt and helps in measure whether it is sustainable or not. If the
percentage is too high, it might indicate that it is too difficult for the business to pay off its debts
and continue operations.
Debt Ratio= Total Debt/Total Assets
Total debt to total assets is a leverage ratio it describe the total amount of debt relative to assets.
This enables comparisons of leverage to be made across different companies. This is a broad
ratio that includes long-term and short-term debt, borrowings maturing within one year, as well
as all assets tangible and intangible. (B. Jordan, 2010)
Total debt to total assets ratio is not bargain any indication of asset characteristic, it mass all
tangible and intangible assets together. Other ratios, the trend of the total debt to total assets
should further be evaluated over time. This will help assess whether the companys financial
risk profile is improving or deteriorating. (D. Hillier, 2010)
Debt ratio is a monitoring of a Bank organizations financial risk, the risk that the banks total
assets may not be adequate to pay off its debts and interest there on. It is not being capable to pay
off debts and interest payments may result in the banking organization being wound up, debt
ratio is a critical significant of long-term financial sustainability of a banking organization. The
very lower value of debt ratio is good in the wisdom that the Banks assets are enough to meet its
responsibly it may shown underutilization of a major source of finance and actual result in
limited growth. The higher rate of debt ratio notifies high risk for both debt-holders and equity
investors. High risk of the bank may not be capable to gain finance at good terms or not be
capable to incresing any more money at all.[Jan,2011]
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i. Relationship between Debt to Total Assets Ratio and Return on Assets

(ROA)
According to the, Cox and Hutchinson (2006), there were concern among bank capital and
earnings among USA banks. It was classify between two periods, less regulated period and a
more highly regulated period with the intention of realizing the correlation between capital and
profitability in these two periods. It showed that for both periods there were a positive
relationship between the financial leverage and return on equity and while there was an inverse
relationship between return on assets and financial leverage.
Subaii (2012) study proved the relationship between return on assets and financial leverage the
level of every sector of the three economic sectors of the Kuwaiti economy. The study
terminated that there is a positive relationship between return on investment and financial
leverage for all economy sectors.
According to the Ahmad, Abdullar and Roslan (2012) carried a study in Malaysia which
searched to look into the impact of capital structure on firm performance by explore the
relationship between return on assets (ROA), return on equity (ROE) and short term debt and
total debt. It was founded that short-term debt and long-term debt had important relationship
with ROA. It was also established that ROE had important relationship with total debt, short-
term debt and long-term debt
j. Cost Income Ratio (CIR)
According to Malhotra (1999) Banking Sector Reforms is wisdom of PSBs, it has resolved
the execution of PSBs as a result of banking sector reproduce. It divided into two parts. In the
first part, a brief review of banking reforms has been made. Banks profitability is its efficiency
to measure by the cost to income ratio. The cost to income ratio, defined by operating expenses
divided by operating income, can be used for benchmarking by the bank when overlook its
operational efficiency.
According to the Hess and Francis (2004) there is an opposite relationship between the cost
income ratio and the banks profitability.
According to the Ghosh et al. (2003) there is negative relation between the efficiency and cost-
income ratio seems to exist. The cost income ratio with its restriction (Welch, 2006), is another
outgoing measure of benchmarking metric and banks efficiency (Hess and Francis, 2004).
(Siraj and Pillai 2011), here is the importance of operating efficiency for banks was fairly study
done on Indian scheduled commercial banks.
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There is a operating efficiency ratio for commercial banks and it is dividing operational expenses
by the sum of net interest income and non-interest or fee income (Allen and Rai (1996)
The cost-to-income ratio is a key financial important and measure in appraise banks. It shows a
companys costs in relation to its income. For finding the ratio it should divide the operating
costs (administrative and fixed costs, such as salaries and property expenses, but not bad debts
that have been written off) by operating income. The ratio gives investors a clear view of how
efficiently the firm is being run the lower it is, the more profitable the bank will be. Changes in
the ratio can also highlight potential problems: if the ratio rises from one period to the next, it
means that costs are rising at a higher rate than income, which could suggest that the company
has taken its eye off the ball in the drive to attract more business.
The cost/income ratio is
Operating Expenses Operating Income
Where,
Operating Expenses = Employee Cost + Other Operating Expenses

Operating Income = Net Interest Income + Other Income
The cost/income ratio is an efficiency measure similar to operating margin. Unlike the operating
margin, lower is better. The cost income ratio is most generally used in the financial sector.
It is useful to measure how costs are changing compared to income - for example, if a bank's
interest income is increasing but costs are growing at a higher rate looking at changes in this
ratio will highlight the fact.
k. Relationship between Cost Income Ratio (CIR) and Return on Assets (ROA)
According to the Palekov (2015) the determinants of banking efficiency in the Czech banking
industry and establish a negative relationship between efficiency and ROA.
Operating efficiency is one of factors the Return on Assets or examined the determinants of
banking profitability and the banking efficiency is included. According to Koak and Zajc (2006)
estimated determinants of efficiency in the new EU member countries
According to the definition, Return on Assets (ROA) shows the profitability of banks by
generating Net Income.
Return on Assets (ROA) = Net Income Total Assets
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On the other hand, the Cost Income ratio is a useful tool when comparing the expenses of
similar properties. If a particular piece of property has a much higher CIR for a particular
expense, such as maintenance, an investor should see that as a red flag and should look deeper
into why maintenance expenses are so much higher than comparable properties.
Cost to Income ratio = Operating Expenses Operating Income
So, there is a relationship between Cost to Income ratio and return on asset
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Business research method Independent University, Bangladesh
VI. Methodology
The research we have studied is a quantitative research process based on some reasonable
Hypotheses. We used exploratory studies for descriptive statistical analysis. This Study applies
basically secondary data based on financial statements of all the 5 listed Commercial Bank on
the Dhaka Stock Exchange (DSE). This Research Use data from the annual report of listed firms
for the period of 2012-2016 which include income statements, balance sheets and other
important information and collected all the annual report from Lankabd website .The data that
was collected from companys annual reports were used for calculating and measuring the
different variables used as control variable in the model.
Selected Commercial Bank Are:
1) Standard Bank
2) Jamuna Bank
3) Marcentile Bank
4) Uttara Bank
5) IFIC Bank
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VII. Conceptual Framework
For our study we have used this research model.
a. Equation is:
1. Y= Dependent Variable
2. X= Independent Variable
b. The equation model is
y = 0+ x+x+x+x+x+
Where,
1. Y = ROA
2. 0 = Constant
3. , , B3, , = Co-efficient
4. = Error
5. x = Independent variables
6. x1= CCTA
7. x2 = TCRWA
8. x3 = CIR
9. x4 = AT
10. x5 = DTA
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c. Our Model
ROA = C + CCTA1 + TCRWA2 + CIR3 + AT4 + DTA5
In the following Conceptual Framework only one dependent variable is Return on Assets (ROA)
and rest of the five variables are independent variables.
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d. Dependent Variable
ROA = Return on Asset
e. Independent Variable
1. CCTA = Core Capital to Total Assets
2. TCRWA = Total capital to Total Risk Weighted Asset
3. CIR = Cost Income Ratio
4. AT = Asset Turnover
5. DTA = Debt to Total Asset
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VIII. Research Question and Hypothesis
Y= Return on Asset
X1= Core Capital to Total Assets

Q= is there any significant relationship between Return on Asset and CCTA Ratio?
H0 = there is no significant relationship between Return on Asset and CCTA Ratio.
HA= there is a significant relationship between Return on Asset and CCTA Ratio.
X2= Total capital to Total Risk Weighted Asset

Q= is there any significant relationship between Return on Asset and TCRWA Ratio?
H0= there is no significant relationship between Return on Asset and TCRWA Ratio.
HA= there is a significant relationship between Return on Asset and TCRWA Ratio.
X3= Cost Income Ratio

Q= is there any significant relationship between Return on Asset and CI Ratio?
H0 = there is no significant relationship between Return on Asset and CI Ratio.
HA= there is a significant relationship between Return on Asset and CI Ratio.
X4= Asset Turnover Ratio

Q= is there any significant relationship between Return on Asset and AT Ratio?
H0 =there is no significant relationship between Return on Asset and AT Ratio.
HA = there is a significant relationship between Return on Asset and AT Ratio.
X5= Debt to Total Asset Ratio

Q= is there any significant relationship between Return on Asset and DTA Ratio?
H0 =there is no significant relationship between Return on Asset and DTA Ratio.
HA = there is a significant relationship between Return on Asset and DTA Ratio.
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IX. Research design
The degree to which the research question has been crystallized

Formal study Our research involves precise procedures and data source
specifications to test the hypotheses and answer the research questions. We will
collect data from annual reports of commercial banks and through analysis test the
hypotheses in order to answer the research questions.
The method of data collection

Monitoring this research does not require primary data as its data source. Data will
be collected from secondary data sources such the companys balance sheet and
income statements from the annual reports of the selected commercial banks.
The power of the researcher to produce effects in the variables under study
Ex post facto as well be dealing with data that has already occurred, we have no
control over the data. The balance sheet and other reports of the commercial banks
have already recorded the data we will be working with. We can only report what has
happened by analyzing the data.
The purpose of the study

Causal-Explanatory in this research study we try to explain the relationship between
the commercial banks and financial performance. We will observe the effect of
financial performance on Commercial banks.
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The time dimension

Longitudinal the research involves analyzing of data of the commercial banks that
has been occurring over the past 5 years.
The topical scope breadth and depth of the study

Statistical study this research attempts to find out the characteristics of all the
commercial banks by making inferences from a sample of five commercial banks
characteristics, which will be tested through quantitative analysis.
The research environment

Simulation in order to find out the relationships of the variables in the actual
situations, we will create a mathematical model to replicate the natural environment
and analyze the model in a controlled environment.
The participants perceptual awareness of the research activity

Deviations perceived as researcher-induced since well be the ones analyzing the
data of the commercial banks, there is a possibility of deviating the result of the study
due to our assumptions/ understanding of the subject matter.
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X. Sampling Design
f. Sample Size
We selected five Commercial Bank, Bangladesh with five years of data ranging from 2012 to
2016 to conduct our research.
g. Sampling Units
Our sampling units are:
1. Standard Bank
2. Jamuna Bank
3. Marcentile Bank
4. Uttara Bank
5. IFIC Bank
h. Sampling Method
We chose our sample randomly from Dhaka Stock Exchange.
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XI. Data Collection
The study is explorative study and the information presented is based on secondary data
collected from the Dhaka Stock Exchange. We have the Eviews software to analyze the data
collected. The information on selected Commercial Bank in Bangladesh was collected for the
period 2012 to 2016. This study shows the extent of relationship that exists between the
dependent variable (ROA) and the independent variables (CCTA, TCRWA, CIR, AT, DTA). After
the computation of values from the financial statements of the respective years, it pave way to
have a good cross sectional and longitudinal data which aided the multiple regression.
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XII. Descriptive analysis
Mean
1. Here according to the descriptive statistics, the mean value of ROA of Commercial
Bank of Bangladesh is 0.010593
2. The mean value of CCTA of Commercial Bank of Bangladesh is 0.090448
3. The mean value of TCRWA of Commercial Bank of Bangladesh is 0.213179
4. The mean value of CI Ratio of Commercial Bank of Bangladesh is 0.506333
5. The mean value of AT Ratio of Commercial Bank of Bangladesh is 0.073604
6. The mean value of DTA Ratio of Commercial Bank of Bangladesh is 0.889803
Median
1. Here according to the descriptive statistics, the Median value of ROA of Commercial
2. The Median value of CCTA of Commercial Bank of Bangladesh is 0.089287
3. The Median value of TCRWA of Commercial Bank of Bangladesh is 0.142878
4. The Median value of CI Ratio of Commercial Bank of Bangladesh is 0.491789
5. The Median value of AT Ratio of Commercial Bank of Bangladesh is 0.071501
6. The Median value of DTA Ratio of Commercial Bank of Bangladesh is 0.846325
Maximum
1. Here according to the descriptive statistics, the Maximum value of ROA of Commercial
2. The Maximum value of CCTA of Commercial Bank of Bangladesh is 0.118064
3. The Maximum value of TCRWA of Commercial Bank of Bangladesh is 1.219887
4. The Maximum value of CI Ratio of Commercial Bank of Bangladesh is 0.716434
5. The Maximum value of AT Ratio of Commercial Bank of Bangladesh is 0.092959
6. The Maximum value of DTA Ratio of Commercial Bank of Bangladesh is 1.180876
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Minimum
1. Here according to the descriptive statistics, the Minimum value of ROA of Commercial
2. The Minimum value of CCTA of Commercial Bank of Bangladesh is 0.077768
3. The Minimum value of TCRWA of Commercial Bank of Bangladesh is 0.117929
4. The Minimum value of CI Ratio of Commercial Bank of Bangladesh is 0.376927
5. The Minimum value of AT Ratio of Commercial Bank of Bangladesh is 0.057792
6. The Minimum value of DTA Ratio of Commercial Bank of Bangladesh is 0.754778
Standard Deviation
1. Here according to the descriptive statistics, the Standard Deviation value of ROA of
Commercial Bank of Bangladesh is 0.003340
2. The Standard Deviation of CCTA of Commercial Bank of Bangladesh is 0.008369
3. The Standard Deviation of TCRWA of Commercial Bank of Bangladesh is 0.241820
4. The Standard Deviation of CI Ratio of Commercial Bank of Bangladesh is 0.080102
5. The Standard Deviation of AT Ratio of Commercial Bank of Bangladesh is 0.010045
6. The Standard Deviation of DTA Ratio of Commercial Bank of Bangladesh is 0.129226
Page 37 of 49
XIII. Correlation
From the knowledge of correlation we know

0to 0.30 is weak correlation
0.40 to 0.60 is moderate correlation
0.70 to 0.90 is strong correlation and
1 is very strong correlation.
If the Correlation is positive hence the null hypothesis is rejected and alternate hypothesis is
accepted..
On the other hand correlation which is negetive value. So the null hypothesis is accepted and
alternate hypothesis is rejected.
ROA and CCTA
The correlation between ROA and CCTA Null hypothesis is rejected and alternate
Ratio is hypothesis is accepted.
0.1292400323839359 which represents there is
Positive weak correlation.
ROA and TCRWA
The correlation between ROA and TCRWA The null hypothesis is accepted and alternate
Ratio is hypothesis is rejected.
-0.07725189567620774 which represents there
is negative weak correlation.
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ROA and CIR
The correlation between ROA and CIR Ratio is The null hypothesis is accepted and alternate
-0.1946885842204969 which represents there hypothesis is rejected.
ROA and AT
The correlation between ROA and AT Ratio is The null hypothesis is accepted and alternate
-0.2583774366151204 which represents there hypothesis is rejected.
ROA and DTA
The correlation between ROA and DTA Ratio The null hypothesis is accepted and alternate
is -0.2796235784964147 which represents hypothesis is rejected.
there is negative weak correlation.
CCTA and TCRWA
The correlation between CCTA and TCRWA The null hypothesis is accepted and alternate
Ratio is -0.1740984331973326 which hypothesis is rejected.
represents there is negative weak correlation.
CCTA and CIR
The correlation between CCTA and CIR Ratio Null hypothesis is rejected and alternate
is 0.1870759249838295 Which represents hypothesis is accepted.
there is positive weak correlation.
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CCTA and AT
The correlation between CCTA and AT Ratio The null hypothesis is accepted and alternate
is -0.3880277303489386 Which represents hypothesis is rejected.
CCTA and DTA
The correlation between CCTA and DTA Ratio The null hypothesis is accepted and alternate
is -0.1055458966129999 Which represents hypothesis is rejected.
TCRWA and CIR
The correlation between TCRWA and CIR The null hypothesis is accepted and alternate
Ratio is -0.06918704575197602 Which hypothesis is rejected.
TCRWA and AT
The correlation between TCRWA and AT The null hypothesis is accepted and alternate
TCRWA and DTA
The correlation between TCRWA and DTA The null hypothesis is accepted and alternate
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CIR and AT
The correlation between CIR and AT Ratio is The null hypothesis is accepted and alternate
-0.1819979611926338 Which represents there hypothesis is rejected.
CIR and DTA
The correlation between CIR and DTA Ratio is Null hypothesis is rejected and alternate
0.275388849286603 Which represents there is hypothesis is accepted.
positive weak correlation.
AT and DTA
The correlation between AT and DTA Ratio is Null hypothesis is rejected and alternate
0.2283415441418483 Which represents there hypothesis is accepted.
is positive weak correlation.
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XIV. Regression Equation:
The multiple regression models show that the dependent variable is ROA.
The panel least squares method is being used here.
The sample data used here are from the year 2012 to year 2016.
Five years of data are used to perform this study.
Five different banks are assigned for this project. So altogether the total panel observation
is (5*5) = 25
VARIABLES
C is the constant
INDEPENDENT VARIABLES
CCTA means Core Capital to Total Assets
TCRWA means Total capital to Total Risk Weighted Asset
CIR means Cost Income Ratio
AT means Asset Turnover
DTA means Debt to Total Asset
Page 42 of 49
ROA = C + CCTA1 + TCRWA2 + CIR3 + AT4 + DTA5
ROA = 0.025299+ CCTA0.008138 + TCRWA (-0.001999)+ CIR(-0.008750) + AT(-0.089649)

+ DTA-0.004482
HYPOTHESIS TEST:
Here the significant level is = 0.1
Variable Ho H1 P-Value significant Decision

or
Not
significant
Core No There is 0.9321 P> ; We accept the null

significant significant Not hypothesis.
Capital to
between Core Capital Because probability of this
significant
Total Core Capital to Total H1 has significant
to Total Assets and relationship variable is
Assets
Assets and ROA greater than 10%.
ROA
Total No There is 0.5161 P> ; We accept the null

capital to
between Total capital significant Because probability of this
Total Risk Total capital to Total Risk H1 has significant
to Total Weighted relationship variable is
Weighted
Risk Asset and greater than 10%.
Asset Weighted ROA
Asset and
ROA
Cost No There is 0.3677 P> ; We accept the null
Income
between Cost Income significant Because probability of this
Ratio Cost Income Ratio and H1 has significant
Ratio and ROA relationship variable is
ROA greater than 10%.
Asset No There is 0.2782 P> ; We accept the null
Turnover
between Asset significant Because probability of this
Asset Turnover and H1 has significant
Turnover ROA relationship variable is
and ROA greater than 10%.
Page 43 of 49
Debt to No There is 0.4565 P> ; We accept the null

Total
between Debt to Total significant Because probability of this
Asset Debt to Asset and H1 has significant
Total Asset ROA relationship variable is
and ROA greater than 10%.
XV. Joint significant test
H0: There is no jointly significant relation between IVs and DV.

H1: There is jointly significant relation between IVs and DV.
.
Prob (F-Static) test the overall significant of the regression model specifically; we have taken
sample of 5 years from 2012to 2016 for 5 Commercial Bank in Bangladesh. So the total
observation is 25. We assumed the significance level is 10% or .10. After data analyzing, in the
above table we found out the Value of Prob (F-Static) is 0.567320 which is above our significant
level that's why our model is not good fit and null hypothesis will be accepted, alternative
hypothesis will be rejected.
XVI. R-squared
In our regression analysis R-squared is 0.172806 or 17.2806%. 17.2806%. All independent

variables together explain dependent variables.
XVII. Adjusted R-Squared
Adjusted R- squared is -0.044877 which is taken out from all errors.
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XVIII. Significance of the Study
Our aim of this study was to analyze financial performance in commercial banking sector of 5
banking firms identified by the financial information resulting from 2012-2016.
This study emphasis in the following scope:
1. From the study it seems evident that Profitability is influenced by number of factors in
banks which is applicable in the context Bangladeshi Commercial Bank.
2. This study is extremely helpful to investors and regulators in managerial decision
making.
3. This study is helpful to different organizations for conducting further research
XIX. Limitation of the study
The research was qualitative research. Qualitative research displays it own strengths, this also
associated with some limitation and these include the following:
1. The study only 5commercial bank for 5 years which is quite insignificant to draw a
good conclusion for overall Commercial Bank.
2. The study quality is heavily reliant on the data provided in financial statement, if any
misstatement is provided this may seriously hamper the study.
3. It is very difficult to maintain and explain data.
4. The limitation of time to conduct the study
5. Lack of proper experience to conduct the study.

6. Sample size was limited.
7. Research is done with only five companies with some historical data.
8. Lack of time to prepare the relationship
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XX. Conclusion
To date, most academic studies concern the impact of these factors on the performance of the
financial institutions in emerging economies. However, little is known on how these financial
institutions choose to handle with these variables, and their decision may vary. So, our
investigation aims to identify mainly bank-specific factors that can affect the banks financial
performance of Bangladesh and to what extent these determinants exert impact concerning the
banking sector. By using subsidiary data, our study seeks to examine the performance of five
Bangladeshi commercial banks from 2012 to 2016. The empirical findings of this study suggest
that bank specific characteristics both positive and negative relationship with both dependent and
independent variables.
After all the tests that have been conducted and shown above, it can be said the model is not of
good fit. The calculated results show that there are no relationships between any of the
independent variables (i.e. Core Capital to Total Assets, Total capital to Total Risk Weighted
Asset, Cost Income Ratio, Asset Turnover and Debt to Total Asset ) and the dependent variable
(i.e. Return on Asset ) as none of the null hypothesis could be rejected. The values of the
estimated errors are also high. One of the reasons for this could be the sample size. The sample
size of only 25 investors is too small therefore the percentage of error is high.
Page 46 of 49
XXI. References
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investors. New York, Wiley
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4. Louis K C Chan, Narasimhan Jegadeesh and Josef Lakonishok (1996), Journal of Finance,
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5. Prastowo. Dwi,(2002), Analisis Laporan Keuangan, Cetakan Kedua, Yogyakarta: UPP AMP
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7. Berger, Allen N. 1995, English, Article, Working paper edition the role of capital in financial
institutions / Allen N. Berger, Richard J. Herring and Giorgio P. Szego.
8. Gudmundson, R, Ngoka-kisinguh, K., and Odongo, M., (2013), The Role of Capital
Requirements on Bank Competition and Stability the case of the kenyan banking industry,
Kenya Bankers Association, Nairobi, Kenya
9. Halahleh, M. and Matarneh, B. (2012), Financial Performance, Capital Adequacy of Islamic
Banks ,Universal Journal of Management and Social Sciences,
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BUS 485 .. Business Research Methods

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Business research method

Independent University, Bangladesh

Independent University, Bangladesh

The Impact of BASEL II Implementation on the Financial

Performance of Private Commercial Banks of Bangladesh

Semester: Summer 2017

Course Title: Business Research Methods

Course Code: BUS 485

Submitted To: Dr. Samiul Parvez Ahmed

Assistant Professor, IUB

Submitted by: Group Venus

Date of Submission: July 25, 2017

July 25, 2017

Subject: Submission of Report Impact of Basel II Implementation on

Group Members of Team Venus

This report covers study on Financial Performance of Private Commercial Banks of

Subject: Submission of Report Impact of Basel II Implementation on Financial Performance of Private

X. Sampling Design ............................................................................................................................ 34

The Impact of BASEL II Implementation on the

II. Problem Statement

III. Purpose of the Study

A literature review is an evaluative report of information found in the literature related to

a. Return on Asset (ROA): (Dependent Variable)

Return on Assets (ROA) = Net Income/ Total Assets

According to Prastowo (2002:86), Return on Assets (ROA) which is the measure of

b. Core Capital to Total Assets (CCTA) (Independent Variable)

Tier-1 Leverage Ratio = Tier-1 Capital/Total Assets

c. Relationship between Core capitals to Total Assets Ratio (Tier-1 Leverage

Tier 1 capital includes

(b) Disclosed reserves similar as retained earnings, share premiums

According to the following journal, the relationship between Core Capital to

d. Total Capital to Total Risk Weighted Assets (TCRWA)

Capital Adequacy Ratio = (Tier-1 Capital + Tier-2 Capital)/Risk-Weighted Assets

e. Relationship between Total Capital to Risk-Weighted Assets Ratio

f. Asset turnover (AT)

Asset Turnover = Sales or Revenues / Total Assets

Total Revenue / Average Assets = Asset Turnover Ratio

g. Relationship between asset turnover (AT) and return on asset (ROA)

Return on Assets = Net Profit Margin Asset Turnover

h. Debt to Total Assets (DTA): (Leverage)

Debt Ratio= Total Debt/Total Assets

i. Relationship between Debt to Total Assets Ratio and Return on Assets

j. Cost Income Ratio (CIR)

The cost/income ratio is

Operating Expenses Operating Income

Operating Expenses = Employee Cost + Other Operating Expenses

Return on Assets (ROA) = Net Income Total Assets

VII. Conceptual Framework

For our study we have used this research model.

b. The equation model is

ROA = C + CCTA1 + TCRWA2 + CIR3 + AT4 + DTA5

ROA = Return on Asset

1. CCTA = Core Capital to Total Assets

2. TCRWA = Total capital to Total Risk Weighted Asset

3. CIR = Cost Income Ratio

5. DTA = Debt to Total Asset

VIII. Research Question and Hypothesis

X1= Core Capital to Total Assets

X2= Total capital to Total Risk Weighted Asset

X3= Cost Income Ratio

X4= Asset Turnover Ratio

X5= Debt to Total Asset Ratio

IX. Research design

The degree to which the research question has been crystallized