Profitability Determinants of Non-bank Financial Institutions under Basel Regulations: Evidence from a Frontier Market

This article examines the impact of firm-specific and macroeconomic variables on non-bank financial institution (NBFI) profitability in Bangladesh undertaking a gradual implementation of Basel III regulatory standards. One-step difference generalized method of moments (GMM) model is applied on a dataset comprising 15 NBFIs listed on the bourse of Dhaka Stock Exchange (DSE) Limited with a time span of 9 years ranging from 2011 to 2019. In this study, NBFI profitability is measured by return on asset (ROA) and return on equity (ROE). The results of the panel data analysis demonstrate that capital adequacy ratio (CAR), non-performing loans (NPL), gross domestic product (GDP) and inflation (INF) affect NBFI profitability negatively whereas debt to equity ratio (DER) and cost of funds (COF) have a statistically significant and positive impact on the same. The findings of this study are of the essence for policymakers, regulators, investors and other stakeholders in the financial market.