The impact of inflation on bank profitability: a study of the banking sector in Bangladesh.

Abstract

This study examines the relationship between inflation and bank profitability within Bangladesh's banking sector, focusing on how inflationary pressures affect financial stability and earnings. Using a quantitative approach based on secondary data from annual reports, financial statements, and economic publications, this research explores the mechanisms through which inflation impacts interest rates, loan default rates, and overall bank performance. Key financial indicators such as Return on Assets (ROA) and Return on Equity (ROE) are analyzed to assess profitability under varying inflationary conditions. Findings indicate that inflation has a dual effect: while moderate inflation can bolster profitability by raising interest rates, high inflation erodes consumer purchasing power, increases loan defaults, and diminishes profit margins. The study provides insights into how inflation influences the cost of capital, asset quality, and risk management practices, highlighting the need for banks to adopt strategies that mitigate inflationary risks. This research contributes to the understanding of macroeconomic factors affecting bank performance, offering valuable perspectives for policymakers and banking institutions to strengthen financial resilience in the face of economic fluctuations."