Impact of SME Financing on the Performance of State-Owned Banks in Bangladesh

Abstract

Small and Medium Sized Enterprises (SMEs) are one of the key drivers of industrialization, job creation and structural poverty reduction in emerging economies. Recognizing their economic significance, state-owned commercial banks (SCBs) in Bangladesh increasingly have been expanding SME lending as part of loan portfolio. This study examines whether SME financing contributes to the financial performance of SCBs in Bangladesh by analyzing panel data from five state-owned commercial banks over the period 2013–2024. The analysis applies panel regression techniques, including Ordinary Least Squares (OLS), Fixed Effects (FE), Random Effects (RE), and Generalized Least Squares (GLS), to estimate the relationship between SME financing and bank profitability. The estimated coefficient (β = 0.6971, p < 0.01) suggests that increased loan in SME lending is associated with improved shareholder returns among the sampled banks. The findings suggest that structured credit delivery to small business sector is an important financial instrument to maximize the profit of bank. The study contributes to the literature of bank performance and SME financing recent evidence from Bangladesh’s stateowned banks.