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The impact of non-performing loans on bank lending behavior before and amid COVID-19 Pandemic: Evidence from selected private commercial banks in Bangladesh

Author

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  • Md. Khaled Bin Amir Amir

    (Assistant Professor, University of Dhaka)

  • Nayeema Nusrat Choudhury

    (Associate Professor, University of Dhaka)

Abstract

The main objective of this study is to assess the impact of non-performing loans on bank lending behavior before and amid the COVID-19 pandemic. To do this research we have chosen fifteen private commercial banks in Bangladesh and data were taken from the year 2012 to the year 2021. Credit growth as a component of bank lending behavior was selected as the dependent variable and independent variables are non-performing loans to total loans, provision for loan losses to total loans, gross domestic product (GDP) rate, inflation rate, unemployment rate, total loans to total customer deposit, total equity to total asset, tier 1 ratio, growth of customer deposits, the dummy variables are used for incorporating the effect of covid-19. The paper suggests that NPL to total loan, provision for loan losses to total loan, total equity to total asset, and dummy variables (effect of covid-19 on NPL) are found statistically significant and inversely related to credit growth. Another three variables namely total loan to total deposit, deposit growth, and inflation variables are statistically significant and positively related to credit growth. All of the significant variables are consistent with general economic theory except the case for total equity to the total asset. To reduce non-performing loans, the banks may concentrate on improving corporate governance, maintaining strong loan review, thoroughly reviewing the KYC form, must ensure safety principles before approving a loan, collecting information from the CIB, accepting adequate collateral, examining the five C’s, name lending and connected party lending should be strictly prohibited which are quite related with behavioral and judgmental issues, would be a matter of further research Key Words:Bank Lending, Covid-19, Non-Performing loan

Suggested Citation

  • Md. Khaled Bin Amir Amir & Nayeema Nusrat Choudhury, 2023. "The impact of non-performing loans on bank lending behavior before and amid COVID-19 Pandemic: Evidence from selected private commercial banks in Bangladesh," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 12(3), pages 272-285, April.
    • Handle: RePEc:rbs:ijbrss:v:12:y:2023:i:3:p:272-285
    DOI: 10.20525/ijrbs.v12i3.2489
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    References listed on IDEAS

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    1. Raad Mozib Lalon & Farhana Morshada, 2020. "Impact of Credit Risk Management on Profitability of Commercial Banks in Bangladesh: An Estimation of Dynamic Panel Data Model," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 9(3), pages 131-147, July.
    2. Matteo Accornero & Piergiorgio Alessandri & Luisa Carpinelli & Alberto Maria Sorrentino, 2017. "Non-performing loans and the supply of bank credit: evidence from Italy," Questioni di Economia e Finanza (Occasional Papers) 374, Bank of Italy, Economic Research and International Relations Area.
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