6.1.

Profitability Trend Analysis

As stated before, the two measures of profitability: Return on Equity (ROE) and Return on Assets
(ROA) of the commercial banks are used in the study as dependent variables. They help to identify
how much net profit is earned by the commercial banks for one additional unit of shareholders’
equity and total assets of the bank. Below a table showing average ROE and ROA on a quarterly
basis is given:
Table 1. Quarterly Average ROE, ROA and NIM Trend Analysis

Quarters Average ROE Average ROA Average NIM

2018 Q3 2.04% 0.13% 1.31%
2018 Q4 5.66% 0.38% 1.67%
2019 Q1 2.14% 0.14% 1.03%
2019 Q2 2.59% 0.17% 1.39%
2019 Q3 2.03% 0.13% 1.75%
2019 Q4 4.68% 0.31% 2.11%
2020 Q1 2.79% 0.18% 1.47%
2020 Q2 1.76% 0.11% 0.83%
2020 Q3 3.41% 0.23% 0.49%
2020 Q4 3.58% 0.21% 1.05%
2021 Q1 2.35% 0.16% 0.92%
2021 Q2 2.76% 0.18% 1.12%
2021 Q3 2.71% 0.17% 1.41%
2021 Q4 3.41% 0.19% 1.73%
2022 Q1 2.05% 0.13% 1.98%
2022 Q2 2.16% 0.11% 1.25%
2022 Q3 2.51% 0.20% 1.52%
2022 Q4 3.27% 0.21% 2.09%
2023 Q1 3.83% 0.39% 2.11%
2023 Q2 2.42% 0.31% 1.93%
Source: Bank Annual Reports; Author’s Calculation
The average of the total 20 quarters’ average ROE is 2.91%, the average of the total 20 quarters
average ROA is 0.20% and the average of the total 20 quarters average NIM is 1.46%. This shows
that commercial banks selected in the industry have always had tough competition in earning an
adequate profitability on a quarterly basis.

Figure 1. Average ROE Trend Analysis (Quarterly Basis)

Average ROE
6.00%

5.00%

4.00%

3.00%

2.00%

1.00%

0.00%
2018 2018 2019 2019 2019 2019 2020 2020 2020 2020 2021 2021 2021 2021 2022 2022 2022 2022 2023 2023
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Source: Bank Annual Reports; Author’s Calculation

Figure 2. Average ROA Trend Analysis (Quarterly Basis)

Average ROA
0.45%
0.40%
0.35%
0.30%
0.25%
0.20%
0.15%
0.10%
0.05%
0.00%
2018 2018 2019 2019 2019 2019 2020 2020 2020 2020 2021 2021 2021 2021 2022 2022 2022 2022 2023 2023
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Source: Bank Annual Reports; Author’s Calculation

 Figure 3. Average NIM Trend Analysis (Quarterly Basis)

Average NIM
2.50%

2.00%

1.50%

1.00%

0.50%

0.00%
2018 2018 2019 2019 2019 2019 2020 2020 2020 2020 2021 2021 2021 2021 2022 2022 2022 2022 2023 2023
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Source: Bank Annual Reports; Author’s Calculation

The figures of average ROE and average ROA look almost identical showing a zigzag upward &
and downward sloping curves where we have seen almost all variables of agent banking showing
a zigzag sloping curve. But in NIM we can a downward trend around year 2020 because of Global
COVID-19 pandemic.

6.2. Descriptive Summary Statistics

The first empirical data analysis done using STATA 14 is summary statistics. The table containing
the mean, standard deviation, maximum value, and minimum value of independent variables,
dependent variables and also, and controlling variables is given below:

Table 2. Descriptive Summary Statistics

Variables Obs. Mean Std. Dev. Min Max
ROE 200 3.02 2.28 -0.01 12.76
ROA 200 0.20 0.18 -0.001 1.14
NIM 200 2.64 2.18 0.69 4.32
 #AGENTS 200 52.82 110.21 -108 692
#OUTLETS 200 81.34 134.38 -120 692
#ACCOUNTS 200 56,996.54 104,238.20 0 541,419.00
#INREMITTANCE 200 3,901.59 11,644.63 -451.17 88,270.93
#DEPOSIT 200 978.49 2,064.79 -2,106.27 11,892.52
#BANKEXP 200 23.775 8.62 5.25 41
#T.ASSETS 200 380,348.80 278,582.20 52,029.85 1,654,436.00
Source: Author’s Calculation (Remittance, Deposit and Assets are in BDT Million)

The negative minimum values of deposit signify the reduction of the change of the values of the
variables from one quarter to another quarter.

A total of 200 observations were detected. This spanned from 2018-Q3 to 2023-Q2 of 10
commercial banks. ROE, ROA and NIM of the banks showed respectively a low mean of 0.20%,
3.02% and 2.64%. This trend of low ROE, ROA and NIM is seen with almost all of the selected
sample banks.
Number of the agents, number of the outlets, and number of the accounts opened through agent
Banking Model, inward remittance collected and deposit are related with agent banking. The
negative numbers are due to the lay off or the decrease in agents, outlets, accounts, remittance and
deposit collection.

Lastly, Bankexp signify banks experience and total assets are both controlling variables. These
two were also plugged in for descriptive summary statistics to find out their situation in the
sampling of the study.

6.3. Correlation Matrix

Table 3. Correlation Matrix
T.
ROE ROA NIM #AGENTS #OUTLETS #ACCOUNTS #INREMITTANCE DEPOSIT #BANKEXP
ASSETS
ROE 1

ROA 0.9202 1

NIM 0.8867 0.8914 1

#AGENTS 0.118 0.073 0.247 1

#OUTLETS 0.167 0.155 0.67 0.8557 1

 #ACCOUNTS 0.2029 0.1621 0.3681 0.7466 0.8004 1

#INREMITTANCE 0.0184 (0.0696) 0.064 0.6879 0.6965 0.7786 1

DEPOSIT 0.2164 0.1366 0.746 0.7215 0.7007 0.8624 0.8062 1

#BankExp (0.1219) (0.2592) (0.0372) 0.3172 0.2017 0.1929 0.557 0.3294 1

T. ASSETS (0.0825) (0.2648) 0.025 0.4526 0.3291 0.3832 0.6138 0.5144 0.8493 1

Source: Author’s Calculation

Out of seven independent variables, four variables named Amount of Inward remittance, Amount
of Deposit, Years of Bank Experience, and Total assets have only a negative correlation with
ROA, and Two variables named Amount of Deposit and Total assets are seen to have a negative
correlation with ROE. It indicates two common variables named Amount of Deposit and total
assets are seen to have a negative correlation with both Dependent Variables.

6.4. Preliminary Test – Multicollinearity Testing

Table 4. Multicollinearity Test Using Variance Inflation Factor (VIF)

Variable VIF 1/VIF
#ACCOUNTS 6.43 0.155604
#DEPOSIT 5.3 0.188503
#INREMITTANCE 5.22 0.191389
#OUTLETS 5.2 0.192305
#BANKEXP 5 0.200105
T. ASSETS 4.77 0.20979
#AGENTS 4.49 0.222952

Source: Author’s Calculation

All of the calculated VIF values of all the independent variables are shown to have values less than
10. Hence, we conclude these exists no multicollinearity in the dataset.
6.5. Multiple Linear Regression Analysis

6.5.1. Model Specification

Seven independent variables were selected for establishing relationship with the dependent
variables. Since there are three dependent variables to identify relation with, the number of
dependent variable models would also be three. Hence, the regression equations would look like:

1) 𝑅𝑂𝐸 = 𝛼 + 𝛽1 #𝐴𝐺𝐸𝑁𝑇𝑆 + 𝛽2 #𝑂𝑈𝑇𝐿𝐸𝑇𝑆 + 𝛽3 #𝐴𝐶𝐶𝑂𝑈𝑁𝑇𝑆 + 𝛽4 𝐷𝐸𝑃𝑂𝑆𝐼𝑇 +

𝛽5 𝐼𝑁𝑅𝐸𝑀𝐼𝑇𝑇𝐴𝑁𝐶𝐸 + 𝛽6 𝐵𝐴𝑁𝐾𝐸𝑋𝑃 + 𝛽7 𝑇. 𝐴𝑆𝑆𝐸𝑇𝑆 + 𝜖

2) 𝑅𝑂𝐴 = 𝛼 + 𝛽1 #𝐴𝐺𝐸𝑁𝑇𝑆 + 𝛽2 #𝑂𝑈𝑇𝐿𝐸𝑇𝑆 + 𝛽3 #𝐴𝐶𝐶𝑂𝑈𝑁𝑇𝑆 + 𝛽4 𝐷𝐸𝑃𝑂𝑆𝐼𝑇 +

𝛽5 𝐼𝑁𝑅𝐸𝑀𝐼𝑇𝑇𝐴𝑁𝐶𝐸 + 𝛽6 𝐵𝐴𝑁𝐾𝐸𝑋𝑃 + 𝛽7 𝑇. 𝐴𝑆𝑆𝐸𝑇𝑆 + 𝜖

3) 𝑁𝐼𝑀 = 𝛼 + 𝛽1 #𝐴𝐺𝐸𝑁𝑇𝑆 + 𝛽2 #𝑂𝑈𝑇𝐿𝐸𝑇𝑆 + 𝛽3 #𝐴𝐶𝐶𝑂𝑈𝑁𝑇𝑆 + 𝛽4 𝐷𝐸𝑃𝑂𝑆𝐼𝑇 +

𝛽5 𝐼𝑁𝑅𝐸𝑀𝐼𝑇𝑇𝐴𝑁𝐶𝐸 + 𝛽6 𝐵𝐴𝑁𝐾𝐸𝑋𝑃 + 𝛽7 𝑇. 𝐴𝑆𝑆𝐸𝑇𝑆 + 𝜖

6.5.2. Dependent Variable Model – 1 (ROE Model)

The first step is to conduct the Hausman Specification Test. The test will help us to find out the
appropriate regression model for running the regression. A set of hypotheses is developed:

▪ Null Hypothesis, H0: Random Effects Model is appropriate

▪ Alternate Hypothesis, H1: Fixed Effects Model is appropriate

Table 5. Hausman Specification Test for ROE Regression Model

chi2(7) = (b-B)'[(V_b-V_B)^(-1)](b-B)
= 8.2
 Prob>chi2 = 0.315

Source: Author’s Calculation

Since the p-value (0.315) is larger than our significant level of 5%, we obviously cannot reject the
null hypothesis and should accept it. Therefore, we interpret that the random effects model is
appropriate for the regression.
Now we run the random effects model regression:

Table 6. Random Effects Model Regression of ROA Model

Coef. Std. Err. z P>z
#AGENTS -0.0016 0.0018 -0.88 0.381
#OUTLETS 0.0022 0.0018 1.19 0.235
#ACCOUNTS 0.0017 0.0020 0.89 0.372
INREMITTANCE 0.0036 0.0011 3.19 0.001*
DEPOSIT 0.0054 0.0016 3.35 0.001*
AGE 0.0092 0.0078 1.18 0.238
T. ASSETS -0.0095 0.0056 -1.7 0.09
_cons 0.0932 0.0534 1.75 0.081
R-Squared 0.1528

Source: Author’s Calculation

With an r-squared value of 15.28%, among the seven independent variables, only two variables
namely inward remittance and amount of deposit were found to have significant relationship with
the profitability of the bank’s samples.
The regression equation with the values will be:

𝑅𝑂𝐸 = 0.0932 − 0.0016#𝐴𝐺𝐸𝑁𝑇𝑆 + 0.0022#𝑂𝑈𝑇𝐿𝐸𝑇𝑆 + 0.0017#𝐴𝐶𝐶𝑂𝑈𝑁𝑇𝑆

+ 0.0054𝐷𝐸𝑃𝑂𝑆𝐼𝑇 + 0.0036𝐼𝑁𝑅𝐸𝑀𝐼𝑇𝑇𝐴𝑁𝐶𝐸 + 0.0092𝐴𝐺𝐸
− 0.0095𝑇. 𝐴𝑆𝑆𝐸𝑇𝑆 + 𝜖
6.5.3. Dependent Variable Model – 2 (ROA Model)

Table 7. Hausman Specification Test for ROA Regression Model

chi2(7) = (b-B)'[(V_b-V_B)^(-1)](b-B)
= 6.01
Prob>chi2 = 0.539

Source: Author’s Calculation

Since the p-value (0.539) is larger than our significant level of 5%, we obviously cannot reject the
null hypothesis and should accept it. Therefore, we interpret that the random effects model is
appropriate for the regression.
Now we run the random effects model regression:

Table 8. Random Effects Model Regression of ROA Model

Coef. Std. Err. z P>z
#AGENTS -0.00011 0.00014 -0.74 0.461
#OUTLETS 0.00021 0.00014 1.48 0.138
#ACCOUNTS 0.00017 0.00015 1.1 0.27
INREMITTANCE 0.00029 0.00009 3.34 0.001*
DEPOSIT 0.00041 0.00012 3.47 0.001*
#BANKEXP 0.00111 0.00065 1.71 0.087
T. ASSETS -0.00156 0.00047 -3.35 0.001*
_cons 0.01584 0.00443 3.57 0
R-Squared 0.2347

Source: Author’s Calculation

For this model, the software generated r-squared value of 23.47%., among the seven independent
variables only three variables namely inward remittance, amount of deposit and Total Asset were
found to have significant relationship with the profitability of the bank’s samples.
The regression equation with the values will be:
 𝑅𝑂𝐴 = 0.0158 − 0.00011#𝐴𝐺𝐸𝑁𝑇𝑆 + 0.00021#𝑂𝑈𝑇𝐿𝐸𝑇𝑆
+ 0.00017#𝐴𝐶𝐶𝑂𝑈𝑁𝑇𝑆 + 0.00041𝐷𝐸𝑃𝑂𝑆𝐼𝑇
+ 0.00029𝐼𝑁𝑅𝐸𝑀𝐼𝑇𝑇𝐴𝑁𝐶𝐸 + 0.00111𝐴𝐺𝐸 − 0.00156𝑇. 𝐴𝑆𝑆𝐸𝑇𝑆
+ 𝜖
6.5.3. Dependent Variable Model – 3 (NIM Model)

Table 9. Hausman Specification Test for NIM Regression Model

chi2(7) = (b-B)'[(V_b-V_B)^(-1)](b-B)
= 2.87
Prob>chi2 = 0.4120

Source: Author’s Calculation

Since the p-value (0.4120) is larger than our significant level of 5%, we obviously cannot reject
the null hypothesis and should accept it. Therefore, we interpret that the random effects model is
appropriate for the regression.
Now we run the random effects model regression:

Table 10. Random Effects Model Regression of NIM Model

Coef. Std. Err. z P>z
#AGENTS -0.0021 0.0015 -3.88 0.001*
#OUTLETS 0.0033 0.0018 1.21 0.295
#ACCOUNTS 0.0019 0.0021 0.97 0.431
#INREMITTANCE 0.0037 0.0011 3.36 0.001*
#DEPOSIT 0.0044 0.0017 3.41 0.001*
#BANKEXP 0.0082 0.0077 1.23 0.274
#T. ASSETS -0.0075 0.0046 -1.65 0.089
_cons 0.01232 0.0034 1.79 0.086
R-Squared 0.1937

Source: Author’s Calculation

For this model, the software generated a r-squared value of 19.37%, among the seven independent
variables only three variables namely Number of Agents, inward remittance and amount of deposit
were found to have a significant relationship with the profitability of the bank’s samples.

The regression equation with the values will be:

𝑁𝐼𝑀 = 0.01232 − 0.0021#𝐴𝐺𝐸𝑁𝑇𝑆 + 0.0033#𝑂𝑈𝑇𝐿𝐸𝑇𝑆 + 0.0019#𝐴𝐶𝐶𝑂𝑈𝑁𝑇𝑆

+ 0.0044𝐷𝐸𝑃𝑂𝑆𝐼𝑇 + 0.0037𝐼𝑁𝑅𝐸𝑀𝐼𝑇𝑇𝐴𝑁𝐶𝐸 + 0.0082𝐵𝐴𝑁𝐾𝐸𝑋𝑃
− 0.0075𝑇. 𝐴𝑆𝑆𝐸𝑇𝑆 + 𝜖

Dependent Variable Sub-Model: I (INREMITTANCE Model)

Table 11. Hausman Specification Test for INREMITTANCE Regression Model

chi2(7) = (b-B)'[(V_b-V_B)^(-1)](b-B)
= 2.87
Prob>chi2 = 0.561

Source: Author’s Calculation

Since the p-value (0.561) is larger than our significant level of 5%, we obviously cannot reject the
null hypothesis and should accept it. Therefore, we interpret that the random effects model is
appropriate for the regression.
Now we run the random effects model regression:

Table 12. Random Effects Model Regression of INREMITTANCE Model

Coef. Std. Err. z P>z
#AGENTS 0.00028 0.0036 2.88 0.0021*
#OUTLETS 0.00034 0.000062 3.04 0.00059*
#ACCOUNTS 0.00011 0.00071 3.17 0.001*
_cons 0.03291 0.0034 1.48 0.056
R-Squared 0.4781

Source: Author’s Calculation

For this model, the software generated a r-squared value of 47.81%, All variables namely Number
of Agents, Number of Outlets and Number of Accounts were found to have a significant
relationship with the Inward Remittances through Agent Banking of the Sample bank.

The regression equation with the values will be:

INREMITTAN = 0.03291 + 0.00028#𝐴𝐺𝐸𝑁𝑇𝑆 + 0.00034#𝑂𝑈𝑇𝐿𝐸𝑇𝑆

+ 0.00011#𝐴𝐶𝐶𝑂𝑈𝑁𝑇𝑆 + 𝜖

6.6. Findings of the Analyses

A total of seven independent variables were plugged in (including control variables) to find out
the truly existing relationship between agent banking activities and the profitability base of
commercial banks. Of them, amount of deposit and inward remittance were found to have
significant relationship with ROE having coefficients of 0.0054 and 0.0036 respectively. These
two same variables: amount of deposit and amount of inward remittance were also found to have
significant relationship with ROA having coefficients of 0.00041 and 0.00029. And with a
concrete evidence the same two variables are also common with our third Dependent variable
which is Net interest Margin. With NIM the coefficient of amount of deposit is 0.0037 and the
coefficient of amount of inward remittance is 0.0044.
Except some uncommon variables, all the other variables were regressed to have insignificant
relationship with the profitability of the banks sampled denoted by ROE, ROA and NIM.
A Sub Regression Model named inremittance is also showed to justify if there any dependency of
inward remittance with the number Agent banking, Outlets and Accounts.