Nexus Unclassified Loans, Classified Loans, and Profitability

Abstract

This study investigates the impact of some variables such as total revenue, total assets, total liabilities, total deposits, total unclassified loans, total classified loans, standard loans, special mention account loans, sub-standard loans, doubtful loans, and bad and loss loans on profit before tax. Unbalanced Panel Data were collected from the website of 45Commercial Bank of Bangladesh from the year 2010 to 2018. Ordinary Least Square (OLS), Pooled Ordinary Least Square (POLS), Driscoll-Kraay (DK), Second Stage Least square (2SLS), Generalized Methods of Moments (GMM) methods are used in this study. This research found that total revenue had a significant positive relationship with profit before tax in all the models except DK and GMM models. Total unclassified loans had a significant positive relationship and total liabilities had a significant negative relationship with profit before tax in all the models. Special mention account loans had a significant positive relationship with profit before tax in OLS and DK models and total classified loans had a significant positive relationship with profit before tax in GMM model.