Credit Risk and Profitability of Banking Sector in Sri Lanka

Bandara, Herath Mudiyanselage Kasun Salitha; Jameel, A.L.M.; Haleem, Athambawa

doi:10.32996/jefas.2021.3.1.6

Cited by 7 publications

(12 citation statements)

References 6 publications

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“…The study results that NPL has a negative relationship and significant influence on profitability. The result is consistent with a few other studies done by Bandara, Jameel, and Haleem (2021), Dewi and Badjra (2020), Swandewi and Purnawati (2021), Widyakto, Suhardjo, NSS, and Ardiansari (2021). Studies were done by Simbolon and Simanjuntak (2020), Adiatmayani and Panji (2021) on state-owned commercial banks and reveals the same results.…”

Section: G Effect Of Non-performing Loan On Profitabilitysupporting

confidence: 93%

“…The study reveals that NPL has a negative relationship but no significant impact on profitability of commercial banks in Bangladesh. The findings matches to Islam et al (2020) but differ with Patwary and Tasneem (2019), Dewi and Badjra (2020), Bandara et al (2021), Swandewi and Purnawati (2021), Widyakto et al (2021), Simbolon and Simanjuntak (2020), Adiatmayani and Panji (2021).…”

Section: Effect Of Non-performing Loan On Profitabilitysupporting

confidence: 80%

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Effect of Leverage, Operating Efficiency, Non-Performing Loan, and Capital Adequacy Ratio on Profitability of Commercial Banks in Bangladesh

Uddin

2022

EJBMR

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The present study analyzes the influence of leverage, operating efficiency, non-performing loan, and capital adequacy ratio on the profitability of commercial banks in Bangladesh. The study selected four state-owned commercial banks and six private commercial banks as samples purposively. The study uses secondary data collected from annual reports of sample banks. The study covers balanced panel data for a period of four years from 2017 to 2020. Panel data regression model applies to meet the research questions and hypotheses of the study. The analytical result of the study shows that the leverage as measured by the debt-equity ratio (DER) has a negative and insignificant influence on profitability (ROA). Non-performing loan (NPL) has also a negative and insignificant effect on ROA. Higher DER and NPL lower the profitability position of the bank. The study finds that the operating efficiency as measured by BOPO ratio has a positive and insignificant impact on ROA. The study reveals that the capital adequacy ratio (CAR) has a positive and significant effect on ROA. The present study recommends that banks should be rational about the debt financing and selection of appropriate borrowers for upholding the healthy financial position in Bangladesh.

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Section: G Effect Of Non-performing Loan On Profitabilitysupporting

confidence: 93%

Section: Effect Of Non-performing Loan On Profitabilitysupporting

confidence: 80%

Effect of Leverage, Operating Efficiency, Non-Performing Loan, and Capital Adequacy Ratio on Profitability of Commercial Banks in Bangladesh

Uddin

2022

EJBMR

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“…The financial health of a business allows investors to make comparisons among firms within the same industry or between different industries or sectors (Donthu and Gustafsson, 2020). Several studies have investigated the impact of different factors on company profitability, such as liquidity management (Bandara and Wijesinghe, 2021); firm size (Zaid et al. , 2014; Yazdnafar, 2013); firm age (Gabriel et al.…”

Section: Introductionmentioning

confidence: 99%

“…The findings show that asset utilization is positively associated with financial performance [measured by return on assets (ROA) and return on equity (ROE)] [3], and leverage is negatively associated with financial performance. Several other studies have focused on the profitability of banks (Pan and Pan, 2014; Zhang and Daly, 2014), Islamic banks (Mohammad and Mohamed, 2015; Sholikhin et al ., 2021) and agricultural companies (Leng and Wang, 2006; Bugu and Yucheng, 2018), while other studies have focused on manufacturing companies (Din et al , 2021; Bandara and Wijesinghe, 2021) and insurance companies (Camino-Mogro and Bermúdez-Barrezueta, 2019).…”

Section: Introductionmentioning

confidence: 99%

Determinants of profitability in Chinese companies

Alarussi

Gao

2021

IJOEM

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Purpose This study is conducted to determine the factors that affect profitability in Chinese listed companies (by using financial ratios). Four independent variables liquidity, intangible assets, working capital and company leverage were empirically tested for their relationships with profitability besides two control variables which are firm size and company efficiency.Design/methodology/approach This study used secondary data extracted manually from the annual reports of non-financial Chinese listed companies on the Shanghai stock exchange (http://www.szse.cn/); the data set covers 100 companies during the period of 2017–2019, and a random selection method was used in order to achieve credibility and fairness as much as possible.Findings The findings show firm size, working capital and intangible assets have positive and significant relationships with profitability [return on assets (ROA) and earnings per share (EPS)]. Positive working capital is important to lower the cost of capital and improve companies' profitability. Intangible assets are also an essential source to improve profitability due to their low costs. In addition, the findings display a negative and strong relationship between liquidity and profitability, meaning that companies suffer low profit due to inefficient use of liquid items. Interestingly, leverage, which is measured by debt ratio and leverage ratio, shows mixed results; debt ratio shows a positive and strong association with ROA but not with EPS; while leverage ratio displays a strong but negative association with ROA but not with EPS. These results confirm the inverted U-shape relationship between leverage and profitability, which depends on the balance between benefit and cost of debt.Social implications Profitability is also important for employees and society where business organization provides sustainability and stability for both of them. Employees can then significantly contribute to achieve higher firm's profitability by efficiently using firm's resources.Originality/value This study differs than previous studies in number of aspects: First, this study focuses on financial ratios to explain profitability in Chinese companies. This study provides empirical results about the factors connected to profitability and help stakeholders to make their right decisions. Second, it examines the impact of four independent factors and two control variables that some of them are new in Chinese context such as intangible assets. Third previous studies focus on financial industry such as banks; however, this study focuses on non-financial industry.

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“…Likewise, Safitri and Oktavia (2022) found that NPL has a negative and significant effect on ROA. Similarly, Bandara et al (2021) showed that non-performing loans have negative and significant return on assets. Furthermore, Do et al (2020) revealed that non-performing loans have negative impact on the bank's profitability.…”

Section: Non-performing Loanmentioning

confidence: 99%

Impact of Financial Ratios, Operational Efficiency, and Non-Performing Loans on the Profitability of Nepalese Commercial Banks

Sah¹,

Saud²

2022

Lumbini J. Bus. & Econ.

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The study examines the impact of financial ratios, operational efficiency, and non-performing loan on the profitability of Nepalese commercial banks. Return on assets and Return on equity is selected as the dependent variables. The selected independent variables are leverage, liquidity ratio, net interest margin, capital adequacy ratio, non-performing loan, and operating efficiency. The study is based on secondary data of 20 commercial banks with 120 observations from 2015/16 to 2020/21. The data were collected from bank supervision reports published by Nepal Rastra Bank (NRB) and annual reports of the selected commercial banks.. The correlation coefficients and regression models are estimated to test the significance and importance of financial ratios, operational efficiency, and non-performing loan on the profitability of Nepalese commercial banks. The study showed that leverage and operating efficiency has a negative impact on return on assets. It indicates that increased leverage and operating efficiency leads to a decrease in return on assets. Similarly, liquidity ratio, net interest margin, capital adequacy ratio and the non-performing loan has a positive impact on return on assets. It indicates that the higher the liquidity ratio, net interest margin, capital adequacy ratio and non-performing loan, the higher would be the return on assets. Likewise, leverage, liquidity ratio and net interest margin has a positive impact on return on equity. It indicates that an increase in leverage, liquidity ratio, and net interest margin leads to an increase in return on equity. Furthermore, capital adequacy ratio, non-performing loan, and operating efficiency has a negative impact on return on equity. It indicates that an increase in capital adequacy ratio, non-performing loan and operating efficiency leads to decreasing in return on equity.

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Credit Risk and Profitability of Banking Sector in Sri Lanka

Cited by 7 publications

References 6 publications

Effect of Leverage, Operating Efficiency, Non-Performing Loan, and Capital Adequacy Ratio on Profitability of Commercial Banks in Bangladesh

Effect of Leverage, Operating Efficiency, Non-Performing Loan, and Capital Adequacy Ratio on Profitability of Commercial Banks in Bangladesh

Determinants of profitability in Chinese companies

Impact of Financial Ratios, Operational Efficiency, and Non-Performing Loans on the Profitability of Nepalese Commercial Banks

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