Bank risk and performance in an emerging market setting : the case of Bangladesh

Purpose This study aims to investigate the impacts of bank capital requirements on the performance and risk of the emerging economy, i.e. Bangladeshi banking sector. Design/methodology/approach The study applies an unbalanced panel data which comprises 30 banks yielding a total of 413 bank-year observations over the period 2000 to 2015. Findings Using generalized methods of moments, the empirical results of this research reveal that bank capital is positively and significantly impressive on bank performance, whereas negatively and significantly impact on risk. The study also finds the inverse relationship between risk and performance in both the performance and risk equations. The results also indicate that there is a persistence of performance and risk from one year to the next year. Originality/value This is the unique investigation on Bangladeshi bank industry that considers the simultaneous effect of bank capital requirements on risk and performance. Therefore, it is predicted that the empirical evidence of this research shows policy implications to the regulatory authority of Bangladeshi banking industry to determine relevant policies.