Corporate Social Responsibility, Profitability, and Non-Interest Income in Bangladesh’s Banking Sector: Evidence from Fixed-Effect Panel Analysis

Abstract

The purpose of this study is to examine the role of Corporate Social Responsibility (CSR) spending and profitability in generating non-interest income in Bangladesh's banking sector. Non-interest income refers to bank revenue generated from sources other than loan interest, such as fees, commissions, card services, remittance services, trade finance, and other service-based banking activities. The analysis is based on a balanced panel of 20 Bangladeshi commercial banks over five years, producing 100 bank-year observations for 2020-2024. The dependent variable is the non-interest income ratio; the main explanatory variable is the CSR expenditure ratio, and the profitability variable is the return on assets (ROA). The empirical approach uses bank fixed-effects and two-way bank-year fixed-effects regressions with robust standard errors to account for bank heterogeneity and common annual shocks. The results show that CSR expenditure has a positive and statistically significant impact on the non-interest income ratio. Additionally, non-interest income is positively and significantly associated with profitability. The two-way fixed-effects model results suggest that every 1% increase in the CSR expenditure ratio (scaled by 1000) is associated with an estimated 0.092 increase in the non-interest income ratio, whereas ROA is correlated with non-interest income. The results indicate that CSR investments can support income diversification through reputation, customer trust, and stakeholder legitimacy. Meanwhile, the banks that enjoy profits seem better suited to build profitable fee- and service-based revenue streams. The findings of the study will add to the CSR and banking literature by highlighting the shift from the traditional link between CSR and profitability to the CSR-income diversification channel in an emerging banking market.