Impact of Non-Performing Loan on Profitability of Banks in Bangladesh: A Study from 1997 to 2017

1
Md. Sazzad Hossain Patwary
Md. Sazzad Hossain Patwary
2
Nishat Tasneem
Nishat Tasneem
1 University of Dhaka

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Bangladesh being a developing country heavily depends on the banking sector for smooth financial intermediation. Banking industry of Bangladesh has been facing the acute problem of NPL since long. This paper aims to discover the impact of non-performing loan ratio, capital adequacy ratio and provision maintenance ratio on the return on asset (ROA) of all banks based on the last twenty-one years data. This study also investigates the root causes and adverse effects of the non-performing loan. Secondary sources of data are collected from the annual reports of Bangladesh Bank and analyzed by Ordinary Least Square (OLS) method and Vector Auto Regression (VAR) model using STATA 14.2. The results of the study reveal that there are different directional short-run causality exist between variables and the OLS regression analysis confirms that two independent variables; non-performing loan ratio and provision maintenance ratio are statistically significant to the dependent variable; return on asset (ROA).

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No external funding was declared for this work.

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The authors declare no conflict of interest.

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Md. Sazzad Hossain Patwary. 2019. \u201cImpact of Non-Performing Loan on Profitability of Banks in Bangladesh: A Study from 1997 to 2017\u201d. Global Journal of Management and Business Research - C: Finance GJMBR-C Volume 19 (GJMBR Volume 19 Issue C1): .

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GJMBR Volume 19 Issue C1
Pg. 13- 27
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Crossref Journal DOI 10.17406/GJMBR

Print ISSN 0975-5853

e-ISSN 2249-4588

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February 7, 2019

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Bangladesh being a developing country heavily depends on the banking sector for smooth financial intermediation. Banking industry of Bangladesh has been facing the acute problem of NPL since long. This paper aims to discover the impact of non-performing loan ratio, capital adequacy ratio and provision maintenance ratio on the return on asset (ROA) of all banks based on the last twenty-one years data. This study also investigates the root causes and adverse effects of the non-performing loan. Secondary sources of data are collected from the annual reports of Bangladesh Bank and analyzed by Ordinary Least Square (OLS) method and Vector Auto Regression (VAR) model using STATA 14.2. The results of the study reveal that there are different directional short-run causality exist between variables and the OLS regression analysis confirms that two independent variables; non-performing loan ratio and provision maintenance ratio are statistically significant to the dependent variable; return on asset (ROA).

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Impact of Non-Performing Loan on Profitability of Banks in Bangladesh: A Study from 1997 to 2017

Md. Sazzad Hossain Patwary
Md. Sazzad Hossain Patwary University of Dhaka
Nishat Tasneem
Nishat Tasneem

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