The Impact of Foreign Trade on Banks’ Sustainability: An Empirical Study on State-Owned Commercial Banks in Bangladesh

Abstract

The sustainability of Bangladesh's state-owned commercial banks is examined in this paper, with a focus on six state-owned commercial banks are Janata Bank PLC, Sonali Bank PLC, Agrani Bank PLC, Rupali Bank PLC, BASIC Bank PLC, and BDBL. The research assesses how import, export, letters of credit, inflation, and foreign currency rates affect bank sustainability as assessed by Asset Growth (AG) using secondary data gathered from annual reports and other macroeconomic sources for the years 2010– 2024. The goal of the study is to link theoretical knowledge with actual banking operations, and it was inspired by the practical experience obtained during the internship at Janata Bank PLC. Panel data methods, such as Pooled OLS Regression Model, Hausman specification test, Random Effects Model, Correlation Analysis, Heteroscedasticity test, and Multicollinearity test, form the basis of the empirical study. The results show that the sustainability of state-owned commercial banks is mostly explained by macroeconomic factors and international commerce. Export activity is one of the explanatory factors that has a statistically significant and substantial positive impact on asset growth, suggesting that increased export transactions support banks' long-term viability. On the other hand, import activity has a substantial negative impact, indicating that an overreliance on import financing may raise risk and diminish financial stability. Additionally, there is a strong negative and substantial correlation between the foreign exchange rate and bank sustainability. This suggests that exchange rate volatility poses considerable issues for banks that engage in international commerce. Conversely, letters of credit have a positive but statistically insignificant link with asset growth, while inflation shows a positive and substantial influence. The model's overall explanatory power is good, accounting for around 56.2% of the variance in bank sustainability.