Determinants of Non-Performing Loans (NPLs): A Study on Private Commercial Banks in Bangladesh

Abstract

The study was conducted to explore the determining factors of non-performing loans of the private commercial banks in Bangladesh. A panel dataset, along with a fixed effect model, was used. Consistent with empirical evidence, it has been found that an increase in GDP exerts a substantial adverse outcome on NPLs, indicating that it generally transforms into more revenue which in turn contributes to lesser NPLs. This research shows a significant negative relationship between the bank’s size and the state of NPLs. We have also found that large banks are not necessarily more efficient in scrutinizing loan customers compared to smaller banks. The empirical results show that higher-term loans stimulate higher NPLs. This article denotes a significant negative relationship between credit growth and NPLs, indicating the conservative lending procedure adopted by private commercial banks. Therefore, commercial banks with higher credit growth are likely to have lower non-performing loans. However, our evidence does not support the positive correlation between NPLs and the ratio of loans to an asset that apprehends the adversity of banks.