““Assessment of the impact of low interest rate of banks on share market: perspective Bangladesh”

Abstract

Interest rates in Bangladesh have been on a steady decline after the 2011 share market collapse. Stock exchange and interest rates are crucial factors of economic growth of country. As yet no such research has been carried out exclusively on this matter from the perspective of Bangladesh. The last such research was conducted back in 2009 (Uddin&Alam). This study seeks to identify the reasons behind the decline in interest rates and the impact if any; on the share market.

Various yearly data such as ROA, ROE and liquidity of banks was collected from 2007 to 2016. These show that Banks in Bangladesh have seen a steady decline in profitability however a rise in liquidity in the recent years. These, coupled with competitiveness between banks may lead to the current situation. Finally, to investigate the relationship between share price and interest rate; time series analysis was conducted using monthly reports from February 2010 to June 2016. The data was second differenced and then ADF test was conducted. After ensuring that the data was stationary a Causality test (Granger Causality) was conducted which showed a one way causal relation between Interest rates (lending) and Stock Index.