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Impact of Non-Performing Loans on the Growth of the Banking Sector in Bangladesh

Author

Listed:
  • Momtaj Parvin

    (Metropolitan University, Sylhet, Bangladesh)

  • Merajul Islam

    (Pabna University of Science and Technology, Pabna, Bangladesh)

  • Larysa Vdovenko

    (Vinnytsia National Agrarian University, Vinnytsia, Ukraine)

Abstract

The banking system of a country is a predictor of its economic prosperity. However, the financial sector has experienced contradictory reactions. The rise of non-performing loans is a notable feature of the banking industry's financial crisis. According to Bangladesh Bank, state-owned banks are prone to substantial collapses, which have a knock-on effect on the entire commercial banking sector. The aim of the study is to determine the impact of non-performing loans on the growth of the banking system in Bangladesh. The paper is mostly an investigative desk study that prioritizes secondary data. Nonetheless, primary data was used, such as in-person interviews with bank personnel and staff, as well as casual conversations with clients. Secondary sources for this article include Bangladesh Bank bulletins, current newspapers and periodicals, some published and unpublished research reports, various websites, and a large number of peer-reviewed publications. The paper incorporates multiple regression analysis to assess the impact of non-performing loans on banking sector growth from 2012 to 2021. The findings revealed a highly significant inverse correlation among NPL, CRAR, and ROE, as well as a significant but negative relationship among NPL, ROA, NIM, and SLR. However, the alternative hypothesis is accepted, whereas the null hypothesis is rejected. Therefore, NPLs have a severe effect on banking advancement since they worsen banks' liquidity issues, lower profitability, trigger capital constraints, and even jeopardize the financial system's stability and viability.

Suggested Citation

  • Momtaj Parvin & Merajul Islam & Larysa Vdovenko, 2023. "Impact of Non-Performing Loans on the Growth of the Banking Sector in Bangladesh," Oblik i finansi, Institute of Accounting and Finance, issue 1, pages 79-90, March.
    • Handle: RePEc:iaf:journl:y:2023:i:1:p:79-90
    DOI: 10.33146/2307-9878-2023-1(99)-79-90
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    References listed on IDEAS

    as
    1. Mohd Zaini Abd Karim & Sok-Gee Chan & Sallahudin Hassan, 2010. "Bank Efficiency and Non-Performing Loans: Evidence from Malaysia and Singapore," Prague Economic Papers, Prague University of Economics and Business, vol. 2010(2), pages 118-132.
    2. Uma Murthy & Naail Mohammed Kamil & Paul Anthony Mariadas & Dilashenyi Devi, 2017. "Factors Influencing Non-Performing Loans in Commercial Banks: The Case of Banks in Selangor," International Journal of Business and Management, Canadian Center of Science and Education, vol. 12(2), pages 246-246, January.
    3. Wongnaa, C. A. & Awunyo-Vitor, D., . "Factors Affecting Loan Repayment Performance Among Yam Farmers in the Sene District, Ghana," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 5(2), pages 1-12.
    4. David Bholat & Rosa Lastra & Sheri Markose & Andrea Miglionico & Kallol Sen, 2016. "Non-performing loans: regulatory and accounting treatments of assets," Bank of England working papers 594, Bank of England.
    5. Muhammad Waqas & Nudrat Fatima & Aryan Khan & Muhammad Arif, 2017. "Determinants of Non-performing Loans: A Comparative Study of Pakistan, India, and Bangladesh," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 6(1), pages 51-68, January.
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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