Abstract:
This report investigates the determinants of profitability of Sonali Bank PLC, a key state-owned commercial bank playing a significant role in Bangladesh’s financial system. Profitability is measured using Return on Assets (ROA), which reflects how efficiently the bank utilizes its assets to generate earnings. The study focuses on identifying how selected internal financial factors influence profitability over the period 2015–2024. The analysis is conducted using a quantitative time-series approach based entirely on secondary data collected from the bank’s annual reports and the Dhaka Stock Exchange. To ensure robustness, the study employs descriptive statistics, correlation analysis, and Ordinary Least Squares (OLS) regression, along with diagnostic tests for multicollinearity, heteroskedasticity, and autocorrelation. The explanatory variables include Capital Adequacy Ratio (CAR), Loan to Deposit Ratio (LDR), Cost to Income Ratio (CIR), Net Interest Margin (NIM), and Bank Size (LSIZE). The empirical findings demonstrate that profitability is primarily influenced by operational efficiency and income-generating capacity. Net Interest Margin (NIM) emerges as the most significant and positive determinant, indicating that effective management of interest income and expenses is critical for enhancing financial performance. In contrast, Cost to Income Ratio (CIR) shows a strong negative and statistically significant relationship with profitability, highlighting that inefficiency in cost management directly reduces earnings. Additionally, Capital Adequacy Ratio (CAR) exhibits a positive and statistically significant effect in the robust model, suggesting that a stronger capital base contributes to financial stability and improved profitability. Conversely, Loan to Deposit Ratio (LDR) and Bank Size (LSIZE) do not show statistically significant effects on profitability. This implies that neither aggressive lending strategies nor expansion in size alone is sufficient to enhance financial performance. Rather, the quality of financial management and operational discipline are more decisive factors. In conclusion, the study establishes that profitability in Sonali Bank PLC is largely driven by efficient cost management, effective interest margin optimization, and adequate capital strength. Based on these insights, it is recommended that the bank prioritize improving interest income strategies, strengthening cost control mechanisms, and maintaining a solid capital structure to ensure sustainable financial performance in the long run.
