The liquidity position of EXIM bank and its impact on banks profitability

Abstract

This intern report presents a comprehensive analysis of the liquidity position of EXIM Bank and its impact on the bank’s profitability over a ten-year period from 2014 to 2023. The study focuses on Return on Assets (ROA) as the dependent variable, representing the bank’s profitability, and evaluates the effects of four key independent variables: Non-Performing Loan Ratio (NPLR), Capital Adequacy Ratio (CAR), Earnings Per Share (EPS), and Liquidity Coverage Ratio (LCR). The objective of the report is to understand how internal financial metrics related to liquidity and risk management contribute to the overall profitability of the bank. The analysis reveals that the Liquidity Coverage Ratio (LCR), which reflects the bank's ability to meet short-term obligations with high-quality liquid assets, has a significant and positive correlation with ROA. This indicates that better liquidity management enhances the bank’s financial health, strengthens investor confidence, and improves operational efficiency, all of which positively influence profitability. On the other hand, the Non-Performing Loan Ratio (NPLR) exhibits a strong negative relationship with ROA, suggesting that an increase in non-performing loans deteriorates asset quality, increases provisioning costs, and ultimately reduces profitability. The Capital Adequacy Ratio (CAR), which measures the bank’s capital strength and risk-bearing capacity, shows a mixed impact on ROA. While higher CAR ensures financial stability and regulatory compliance, it may limit short-term profitability due to conservative lending practices. Earnings Per Share (EPS), a measure of shareholder value, is positively associated with ROA, indicating that higher returns to shareholders often align with stronger overall financial performance. The report concludes that to maintain and enhance profitability, EXIM Bank must adopt robust liquidity management practices, improve asset quality by reducing non-performing loans, and ensure an optimal balance between capital adequacy and earnings generation. These findings offer valuable insights for bank management and policymakers to make informed decisions that align liquidity strategies with long-term profitability goals