Macroeconomic and Bank-specific Determinants of Loan Growth in Commercial Banks: A Fixed Effect Model Analysis

Purpose/Objective – This study aims to identify the macroeconomic and bank-specific elements of loan growth in commercial banks in Bangladesh. Methodology/Approach – Panel data from 33 commercial banks, totaling 335 observations from 2011 to 2022, has been considered for statistical analysis. The ordinary least square method has been applied, followed by a fixed effect (FE) model. Several diagnostic tests, i.e., VIF, White’s Hausman, and Pesaran’s tests, were performed to check the applied models’ validity. Results/Findings – Results show that the bank-specific factors, i.e., lagged loan growth, loan to-assets ratio, and liquidity, are positively connected to bank loans with statistical significance, while macroeconomic factors, i.e., gross national income growth, inflation, gross domestic savings, and unemployment, are also positively related to bank loans with statistical significance. However, the cost-to-income and non-performing loan ratios have negative connections with bank loans. Novelty/Originality – Few studies have delved into the subject of loan growth in Bangladesh. This study has revealed both the influencing factors that can induce loan growth. Implications – The policymakers will be able to get insight from the study to set priorities on the issues that have positive and negative impacts on loan growth and the overall stability of the banking industry.