Liquidity Management and Profitability Analysis of Government Commercial Banks in Bangladesh

Abstract

This study investigates the intricate relationship between liquidity management and profitability in government commercial banks in Bangladesh. Liquidity management is crucial for ensuring that banks can meet their short-term obligations while maintaining profitability to sustain long-term growth. This research utilizes a comprehensive dataset from several government-owned banks over a period of ten years (2010-2020), analyzing key financial indicators such as liquidity ratios, return on assets (ROA), and return on equity (ROE). Employing econometric models, the study examines how liquidity management practices impact profitability and identifies the optimal balance between liquidity and profitability. The findings reveal that effective liquidity management significantly enhances profitability, although excessive liquidity can negatively affect returns due to idle resources. The study also highlights the unique challenges faced by government commercial banks in Bangladesh, including regulatory constraints and economic factors, offering policy recommendations to improve financial stability and performance. This research contributes to the existing literature by providing empirical evidence from a developing country context, emphasizing the importance of tailored liquidity strategies for government-owned banking institutions.