Deposit and Lending Behavior of Commercial Banks under Financial Deregulation in Bangladesh:An Empirical Investigation

The adoption of financial deregulation still remains a concern for developing countries since the banking sector in these countries play a more significant role than that in developed countries. Using the aggregate data for the period 1978-2017, this study aims to assess the deposit and lending behavior of commercial banks both before and after the implementation of financial deregulation in Bangladesh, which has been inadequately addressed in the existing banking literature in developing countries. Ordinary Least Square (OLS) regression has been used to investigate the impact of financial deregulation, coupled with a few macro variables, on the deposit and lending behavior of commercial banks during the sample period. It is evident that financial deregulation has a significant and negative impact on the banking sector. The study also reveals that designating separate branches for socially desirable sectors like agriculture, Small and Medium Enterprise (SME), and with export, along with fixing specified rates of financing for these sectors do not necessarily make any difference in a deregulated and competitive framework. For a developing country like Bangladesh, it is more important to provide sufficient incentives for banks, and particularly for private commercial banks for executing these policy instruments successfully through the establishment of desired number of branches in rural areas.