Determinants of Non Performing Loans in Commercial Banks

Abstract

The study attempts to ascertain the determinants of nonperforming loans in National Bank of Commerce. Data was collected from 152 respondents. Tables, percentages, mean and standard deviation were used to analyze data. Data collection methods adopted for the study were interview, questionnaire and documentary evidence. Interest rate, GDP, concentration of lending activities, bank’s loan supervision capacity and economic condition were investigated, and the results suggest that interest rate, GDP, bank’s loan supervision capacity and economic condition influence the level of NPLs. However, the results did not suggest that concentration of lending activities increase the level of NPLs. The study suggests that banks should put in place a vibrant credit process that ensures proper customer selection and risk identification, robust credit analysis, proactive monitoring and clear recovery strategies for bad loans, formulate clear policy framework that addresses issues of ethical standards and check and balance credit process, organizational capacity enhancement of banks, deliberate effort to develop credit culture for managing loans ,and ensure prudent policies that govern bank loans. Since the results for this study were encouraging, the researcher encourages replicating the study for other lending institutions. In order to extend the literature on non-performing loans, the researcher suggested incorporating models of Golem effect, Social loafing, Inverted pyramid effect, Pollyanna effect and High default culture effect. Also, basing on the merits of the study, the researcher suggests determining relationship between non-performing loans and loan size, collateral, credit culture, and credit management information system.

Bank-Specific and Macroeconomic Determinants of Non-Performing Loans of Commercial Banks in Bangladesh

“…Other researchers concentrate on the macroeconomic determinants of NPLs include Cifter et al (2015), Segoviano et al(2006 and Nkusu (2011). Viswanadham et al,(2015) find in their study that economic condition and GDP impact significantly on the level of non-performing loans. Das and Ghosh (2007); Al-Smadi and Ahmad 2009; Warue (2013) and Brownbridge (1998) found a significant and negative relationship between problem loans and GDP.…”

“…The bank-specific factors include credit risk management (Ekanayake andAzeez, 2015, Unit, 2017), bank efficiency (Cifter, 2015), loan growth (Wang, 2007), market share (Beck, Jakubik et al, 2015), concentration of lending activities (Viswanadham and Nahid, 2015), bank"s loan supervision capacity (Viswanadham and Nahid, 2015), reckless lending (Viswanadham and Nahid, 2015), fraud and dishonest (Viswanadham and Nahid, 2015), management deficiencies (Viswanadham and Nahid, 2015), poor credit documentation (Viswanadham and Nahid, 2015), non-use of prudent credit classification and risk assessment methods (Viswanadham and Nahid, 2015) concentration of lending activities (Viswanadham and Nahid, 2015), poor supervision capacity (Viswanadham and Nahid, 2015), and NPL rate of previous year (Ekanayake and Azeez, 2015). Godlewski (2005) draw attention to the links between banks profitability and NPL.…”

The Role of Market Orientation, Creativity and Innovation in Creating Competitive Advantages and Creative Industry Performance

“…The result of previous studies indicates that business performance can be improved through market orientation (Yuan Li, 2008;Yadav;Ou & 2012;Altuntaş et al, 2013;Hassan, 2013;Widana, 2015;Pantouvakis et al, 2017).…”

“…The results of research indicate that market orientation and government regulation have a significant effect on competitive advantage (Afsharghasemi et al, 2013). Market orientation as the main determinant of Islamic banking business performance (Widana et al, 2015).…”

“…Market orientation can improve company performance (Yuan Li et al, 2008;Suliyanto & Rahab, 2012;Yadav & Tripathi, 2014). Other studies show that market orientation as a key determinant of Islamic banking business performance (Widana et al, 2015). Another study shows that implementation of market orientation in small and medium enterprises can improve the performance of international marketing (Armanio et al, 2008).…”