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The Impacts of Non-Performing Loan on Profitability: An Empirical Study on Banking Sector of Dhaka Stock Exchange

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  • Rozina Akter
  • Jewel Kumar Roy

Abstract

The Banking sector of Bangladesh is trapped in a gridlock of non-performing loans (NPLs) so much so that NPL accounts for 11.60 percent of the total volume of classified loans. This problem has started to be widening with an evil trend of loan embezzlement among the industrial borrowers in our country. Frequent scam series in banking industry is surely a red light and unfortunately the commercial banks are highly surrounded by it. The goal of the study is to analyze the impact of non-performing loan (NPL) on profitability where in this study considered net interest margin (NIM). This paper attempts to find out the time series scenario of non-performing loans (NPLs), its growth, provisions and relation with banks profitability by using some ratios and a linear regression model of econometric technique. The empirical results represent that non-performing loan (NPL) as percentage of total loans on listed banks in Dhaka Stock Exchange (DSE) is very high and they holds more than 50 % of total non-performing loans (NPLs) of the listed 30 banks in Dhaka Stock Exchange (DSE) for year 2008 to 2013. Moreover it is one of the major factors of influencing banks profitability and it has statistically significant negative impact on net profit margin (NPM) of listed banks for the study periods.

Suggested Citation

  • 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.
    • Handle: RePEc:ibn:ijefaa:v:9:y:2017:i:3:p:126-132
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    References listed on IDEAS

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    1. Irum Saba & Rehana Kouser & Muhammad Azeem, 2012. "Determinants of Non Performing Loans: Case of US Banking Sector," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 15(44), pages 125-136, June.
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    Cited by:

    1. 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.
    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. 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.
    4. 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.
    5. 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.
    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.

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    More about this item

    Keywords

    Net Profit Margin (NPM); Classified Loan to Total Loan (CLT); Interest Margin (IM); Loan Deposit Ratio (LDR); Bad Debt (BD); Dhaka Stock Exchange (DSE);
    All these keywords.

    JEL classification:

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

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