Impact of NPL on Bank’s Profitability: A Study on State Owned Commercial Banks in Bangladesh

Abstract

A loan that is in default or almost in default is considered non-performing. Non

performing loans (NPLs) have a negative impact on both the national economy and the

banking industry. The central bank's standards require banks to maintain provisions

against non-performing loans, which have a significant impact on the profitability of the

bank. The purpose of this study is to examine the effects of non-performing loans over the

previous 5 years in order to determine if they have had a notable effect on the profitability

of the four banks that were chosen. It also aims to identify the many reasons why non

performing loans occur in Bangladesh's banking industry. Return on Assets was chosen as

the study's dependent variable. Secondary data for this analysis was gathered from these

banks' annual reports during a 5-year period, from 2019 to 2023. Statistical methods are

applied to the data analysis. concentrating on determining if the factors employed in this

study have any link at all. As expected, the data analysis revealed a considerable

influence of NPL on profitability.

One of the study's primary conclusions focuses on the fundamental causes of the rising

number of categorized loans. There are several important steps that may be made to

soften the situation. This study may help in understanding how rising non-performing

loans (NPLs) affect bank performance and in taking proactive measures to manage them.

According to the report, non-performing loans (NPLs) have been the main issue facing

Bangladesh's banking industry over the past few decades. The non-performing loan

(NPL) rate is substantially higher in our nation than the 2 percent international guideline.

It has been shown that as time goes on, the NPL ratio increases progressively. Therefore,

Bangladesh Bank should place more of an emphasis on the NPLs of state owned

commercial banks in its capacity as a credit regulating body.