Sensitivity of Non-Performing Loan to Macroeconomic Variables: Empirical Evidence from Banking Industry of Bangladesh

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Tandra Mondal
Tandra Mondal
1 University of Barisal

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This paper attempts to examine the potential effect of macroeconomic variables on the downfall of loans. The data used in this study range from 2005 to 2014 and cover 22 commercial banks operating in Bangladesh. Failure of credit policy is measured with the rate of nonperforming loan (NPL) which indicates vulnerability of credit system in banking and financial industry. Several researches have been conducted in many countries where mix pattern of relationships has been found. In this research paper, four macroeconomic variables named GDP growth rate, inflation rate, interest rate spread of banking sector and rate of unemployment are tested with NPL ratio in order to ascertain significant relationship for commercial banks of Bangladesh. The result of econometric analysis revealed that NPL is negatively sensitive to inflation rate and interest rate spread and positively sensitive to GDP and unemployment rate.

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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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No ethics committee approval was required for this article type.

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Tandra Mondal. 2016. \u201cSensitivity of Non-Performing Loan to Macroeconomic Variables: Empirical Evidence from Banking Industry of Bangladesh\u201d. Global Journal of Management and Business Research - C: Finance GJMBR-C Volume 16 (GJMBR Volume 16 Issue C4): .

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GJMBR Volume 16 Issue C4
Pg. 31- 38
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Crossref Journal DOI 10.17406/GJMBR

Print ISSN 0975-5853

e-ISSN 2249-4588

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GJMBR-C Classification: JEL Code: B22
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v1.2

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April 28, 2016

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English

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This paper attempts to examine the potential effect of macroeconomic variables on the downfall of loans. The data used in this study range from 2005 to 2014 and cover 22 commercial banks operating in Bangladesh. Failure of credit policy is measured with the rate of nonperforming loan (NPL) which indicates vulnerability of credit system in banking and financial industry. Several researches have been conducted in many countries where mix pattern of relationships has been found. In this research paper, four macroeconomic variables named GDP growth rate, inflation rate, interest rate spread of banking sector and rate of unemployment are tested with NPL ratio in order to ascertain significant relationship for commercial banks of Bangladesh. The result of econometric analysis revealed that NPL is negatively sensitive to inflation rate and interest rate spread and positively sensitive to GDP and unemployment rate.

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Sensitivity of Non-Performing Loan to Macroeconomic Variables: Empirical Evidence from Banking Industry of Bangladesh

Tandra Mondal
Tandra Mondal University of Barisal

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