Do socio-economic factors matter for the financial development of a muslim country? A study in Bangladesh banking sector

The development of a country depends on the combination of its social, financial, and economic development. Despite having the utmost importance on socio-economic equality in Islam, many Muslim countries are still hovering in the developing region. The quest to analyze the inconsistency of relationship between these three primary dimensions of development on a Muslim country substantiates this study. This study tries to analyze the impact of socioeconomic factors on the performance of both Islamic and conventional banks in a Muslim country i.e., Bangladesh. Using static and dynamic GMM model this study found that socio-economic factors especially corruption has a statistically significant negative impact on banks profitability. The study also corroborates some previous research findings about the relationship between the bank-specific determinants and bank profitability. The cost to income ratio and loan loss provision found negatively influence banks profitability. The findings of the negative impact of equity to total asset, on return on equity (ROE) and positive impact on return on asset (ROA) signifies the leverage effect on ROE and importance of capital adequacy. Finally, the study also explains the reasons for poor performance of the banking sector in Bangladesh despite significant economic growth of the country.