Impact of Operational Efficiency, Technological Adoption, and Risk Optimization on Bank Profitability: Evidence from Bangladesh

Abstract

This paper investigates how three elements, including operational efficiency, technology adoption, and optimization of risk, affect bank profitability in Bangladesh. Using panel data from 10 privately owned commercial banks over the period 2014–2023, various econometric models (including pooled OLS, fixed-effects, random-effects, FGLS, and DSGMM) were applied with controls for credit risk, bank size, equity ratio, GDP growth rate and inflation to analyze profitability measures such as Return on Assets (ROA), Return on Equity (ROE), and Net Interest Margin (NIM). The results show that operational efficiency plays a significant role, with lower cost-to-income ratios leading to reduced operational costs, thus enhancing profitability. Technology adoption is positively linked to bank profitability across all estimation methods, indicating the growing importance of digital transformation for banking performance. Capital adequacy, though essential for maintaining solvency and regulatory compliance, does not directly drive profitability but plays a key role in risk management. Again, credit risk negatively affects profitability, highlighting the importance of sound risk management. Overall, the study provides an integrated empirical framework that considers the combined effects of efficiency, technology, and capital management within a dynamic panel setting, thereby contributing to existing literature.