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Micro and Macro Determinants of Non-Performing Loan (NPL) in Banking Sector of Bangladesh

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  • Mobasshir Anjum

Abstract

This study seeks to determine the drivers of Non-performing Loans in the Bangladeshi banking system. To achieve this, panel data from four types of Bangladeshi banks from 2008 to 2021 are utilized. It has employed a fixed effect regression model to analyze the influence of bank-related variables and variables related to macroeconomics on the NPL ratio. This study utilizes return on assets (ROA), return on equity (ROE), and capital to risk-weighted assets (CRAR) as bank-specific variables, whereas GDP Growth, broad money supply, real interest rate, and domestic credit to private sector by banks are employed as macroeconomic variables. The study demonstrates that ROA and ROE have little bearing on the NPL situation of banks, however an increase in the CRAR ratio can enhance the NPL position of banks. Furthermore, the analysis demonstrates that GDP growth and domestic credit to the private sector are the most influential macroeconomic determinants on the NPL condition of the banking system. In addition, the study gives some recommendations that could be crucial in addressing the NPL situation in the Bangladeshi banking system.

Suggested Citation

  • Mobasshir Anjum, 2024. "Micro and Macro Determinants of Non-Performing Loan (NPL) in Banking Sector of Bangladesh," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 16(1), pages 1-15, January.
    • Handle: RePEc:ibn:ijefaa:v:16:y:2024:i:1:p:15
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    References listed on IDEAS

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    1. Khemraj, Tarron & Pasha, Sukrishnalall, 2009. "The determinants of non-performing loans: an econometric case study of Guyana," MPRA Paper 53128, University Library of Munich, Germany.
    2. Peterson K. Ozili, 2019. "Non-performing loans and financial development: new evidence," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 20(1), pages 59-81, January.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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