Firm-specific Financial Determinants of Non-Performing Loan in the Banking Sector of Developing Countries: Evidence from the Listed Commercial Banks in Bangladesh

Journal of Economics and Business

ISSN 2615-3726 (Online)

ISSN 2621-5667 (Print)

Published: 30 November 2018

Firm-specific Financial Determinants of Non-Performing Loan in the Banking Sector of Developing Countries: Evidence from the Listed Commercial Banks in Bangladesh

Arif Ahammed, Sabuj Saha

Ahsanullah University of Science and Technology , Bangladesh

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10.31014/aior.1992.01.04.49

Abstract

This article aims at finding the financial determinants of Non-performing Loans (NPL) in the banking sector of Bangladesh. It employs panel data analysis techniques to find those determinants and the extent of their impact on NPL. It collects data from 2012 to 2016(total 5 years) of 10 listed commercial banks in Bangladesh from their annual report. It finds that Capital Adequacy Ratio (CAR) and Return on Equity (ROE) are significantly negatively related to NPL where Size(S) is a significant positive determinant of NPL. It also finds that Loan growth (LG) is positive determinants of NPL where Loan to Deposit ratio (LTD) is a negative determinant of NPL, but none of these two is significant. Bank management should focus on higher CAR and efficient utilization of assets that will lessen NPL and consequently enhance the performance. Findings of this article are highly congruous with that of existing literature.

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