IDEAS home Printed from https://ideas.repec.org/a/bcp/journl/v9y2025issue-9p7836-7845.html

An Impact of Non-Performing Loans on Financial Performance of Listed Finance Companies in Sri Lanka

Author

Listed:
  • Miss. M.A. Fathima Sheeba

    (Department of Business and Management Studies, Faculty of Communication and Business Studies, Trincomalee Campus, Eastern University, Sri Lanka.)

Abstract

Non-performing loans (NPLs) are often the result of poor management practices within financial institutions and can significantly affect their overall stability. This study aims to examine how NPLs influence the financial performance of finance companies listed on the Colombo Stock Exchange in Sri Lanka. It also seeks to provide a comprehensive understanding of previous research on the topic, identify gaps, and suggest future directions for both academic inquiry and practical application. The research focused on a sample of 10 listed finance companies, using secondary data collected from their annual reports over a five-year period (2017/2018 to 2021/2022). The data was analyzed using descriptive statistics and linear regression through SPSS version 22.0 to evaluate the relationship between NPLs and financial performance indicators. Findings indicate that the NPL ratio has a statistically significant negative impact on key financial performance metrics. Specifically, regression results showed that NPLs negatively affect Return on Assets (ROA) (p < 0.05, β = -0.151) and Return on Equity (ROE) (p < 0.05, β = -0.823). These results clearly demonstrate that higher levels of non-performing loans are associated with weaker financial performance among listed finance companies in Sri Lanka. The study concludes that managing NPLs is critical for enhancing the financial health of finance companies. It recommends the adoption of robust risk management strategies and more effective credit policies to minimize NPLs and improve financial outcomes. These insights can help financial institutions mitigate risks, prevent potential crises, and strengthen their overall performance.

Suggested Citation

  • Miss. M.A. Fathima Sheeba, 2025. "An Impact of Non-Performing Loans on Financial Performance of Listed Finance Companies in Sri Lanka," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(9), pages 7836-7845, September.
    • Handle: RePEc:bcp:journl:v:9:y:2025:issue-9:p:7836-7845
    as

    Download full text from publisher

    File URL: https://www.rsisinternational.org/journals/ijriss/Digital-Library/volume-9-issue-9/7836-7845.pdf
    Download Restriction: no
    File URL: https://rsisinternational.org/journals/ijriss/articles/an-impact-of-non-performing-loans-on-financial-performance-of-listed-finance-companies-in-sri-lanka/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Rozina Akter & Jewel Kumar Roy, 2017. "The Impacts of Non-Performing Loan on Profitability: An Empirical Study on Banking Sector of Dhaka Stock Exchange," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(3), pages 126-132, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Amir, Md. Khaled, 2019. "Does Excess Bank Liquidity Impact Non-Performing Loan? A Study on Bangladeshi Economy," MPRA Paper 101150, University Library of Munich, Germany, revised 10 Aug 2019.
    2. Sakila Zabin & Manik Hossain & Ayrin Sultana, 2024. "Impact of Non-Performing Loans on Bank Profitability: A Study of Rupali Bank PLC, Bangladesh," International Journal of Science and Business, IJSAB International, vol. 42(1), pages 159-174.
    3. Dhanonjoy Kumar & Md. Zakir Hossain & Md. Saiful Islam, 2020. "Non-Performing Loans in Banking Sector of Bangladesh: An Evaluation," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 6(1), pages 22-29.
    4. Khalil Alnabulsi & Emira Kozarević & Abdelaziz Hakimi, 2023. "Non-Performing Loans and Net Interest Margin in the MENA Region: Linear and Non-Linear Analyses," IJFS, MDPI, vol. 11(2), pages 1-17, April.
    5. Mohammad Ziaul Islam & Shormin Aktar & Mohammad Awal Hossen & Mohammad Mohammad Saiful Islam, 2018. "Non-Performing Loan And Asset Utilization Of Banks: Evidence From Bangladesh," Romanian Economic Business Review, Romanian-American University, vol. 13(4), pages 31-39, december.
    6. Samuel Gameli Gadzo, 2018. "Non-Performing Loan and Liquidity of Universal Banks: Does Minimum Capital Requirement Matters?," The Journal of Social Sciences Research, Academic Research Publishing Group, vol. 4(12), pages 792-801, 12-2018.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bcp:journl:v:9:y:2025:issue-9:p:7836-7845. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dr. Pawan Verma (email available below). General contact details of provider: https://rsisinternational.org/journals/ijriss/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.