Non-Performing Loans in Bangladesh: Bank Specific and Macroeconomic Effects

Abstract

This study aims to analyze the bank-specific and macroeconomic determinants
of non-performing loans (NPLs) of private commercial banks (PCB) in
Bangladesh. It considers panel data from 2014 to 2018 of selected 33 listed
PCBs and annual macroeconomic data from 2000 to 2018. This study finds
equity to total assets, interest income, lending capacity, and return on equity of
bank-specific and unemployment and consumer price index of macroeconomic
determinants as significant determinants of NPLs in Bangladesh. The impulse
response functions (IRF) indicate that the reactions of NPLs are positive
toward the shocks on return on equity, return on assets, lending capacity, asset
management and operating efficiency of banks. Wald statistics indicate bankspecific
and macroeconomic variables can jointly influence the NPLs. It is
expected that, the research-based recommendations will benefit bankers and
regulatory authority to formulate appropriate policies to reduce the portion of
NPLs in Bangladesh.