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Non-Performing Loan As Eroding Factor Of Capital Adequacy: Evidence From Banking Industry In Bangladesh

Author

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  • Mohammad Ziaul Islam

    (Leading University, Sylhet, Bangladesh)

  • Mohammad Saiful Islam

    (Leading University, Sylhet, Bangladesh)

Abstract

The purpose of the research paper is to investigate the impact of Non-Performing Loan (NPL) on Capital Adequacy (CA) of bank in a developing country as Bangladesh. The study is important in the context of Bangladesh as growing non-performing loan is eroding significant portion of bank’s capital as an assumed factor without empirical evidence to show the extent of the impact. The study employs a sample size of 40 consisting of the data of Capital Adequacy Ratio (CAR) against Non-Performing Loan (NPL) ratio for last 10 years (2008-2017) generated from four categories of bank. Test of hypothesis, correlation, regression analysis and trend analysis have been conducted using SPSS software. The paper provides empirical evidence that non-performing loan has significant impact on capital adequacy of bank. This study will help the policy makers to control to the desired NPL ratio for ensuring CAR prescribed by the prudential regulatory requirement of central bank. This study seems to be the first attempts to address such an issue in the context of Bangladesh.

Suggested Citation

  • Mohammad Ziaul Islam & Mohammad Saiful Islam, 2018. "Non-Performing Loan As Eroding Factor Of Capital Adequacy: Evidence From Banking Industry In Bangladesh," Romanian Economic Business Review, Romanian-American University, vol. 13(2), pages 23-29, June.
    • Handle: RePEc:rau:journl:v:13:y:2018:i:2:p:23-29
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    References listed on IDEAS

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    1. A Das & S Ghosh, 2007. "Determinants of Credit Risk in Indian State-owned Banks: An Empirical Investigation," Economic Issues Journal Articles, Economic Issues, vol. 12(2), pages 27-46, September.
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    Cited by:

    1. Changjun Zheng & Probir Kumar Bhowmik & Niluthpaul Sarker, 2019. "Industry-Specific and Macroeconomic Determinants of Non-Performing Loans: A Comparative Analysis of ARDL and VECM," Sustainability, MDPI, vol. 12(1), pages 1-17, December.

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