Browse > Article
http://dx.doi.org/10.13106/jafeb.2021.vol8.no4.0709

The Effect of Non-Performing Loan on Profitability: Empirical Evidence from Nepalese Commercial Banks  

SINGH, Sanju Kumar (Department of Management, Faculty of Economics and Business, Universitas Airlangga)
BASUKI, Basuki (Department of Accountancy, Faculty of Economics and Business, Universitas Airlangga)
SETIAWAN, Rahmat (Department of Management, Faculty of Economics and Business, Universitas Airlangga)
Publication Information
The Journal of Asian Finance, Economics and Business / v.8, no.4, 2021 , pp. 709-716 More about this Journal
Abstract
The main objective of this research is to find out the effect of Non-Performing Loan (NPL) of Nepalese conventional banks. The population of this study is major commercial banks in Nepal and the data obtained for this study was from the period 2015-2019. This research used secondary data and it is collected from each bank's annual report and GDP and Inflation taken from the World Bank database. The method used for data analysis in this study is multiple regression analysis. The study used NPL as a dependent variable and Return on Asset (ROA), Capital Adequacy Ratio (CAR), Bank Size, GDP growth, and Inflation as independent/explanatory variables. The result of this research shows that ROA, Bank Size, GDP, and Inflation have a significant effect on NPL but CAR does not have a significant effect on the NPL of banks. In other words, the GDP effect on NPL in this study shows a positive and significant effect while most studies show a negative effect. It demonstrates that when GDP growth increases, there is a significant increase in the growth of Nepalese banks even though there were no significant changes in income growth. Therefore, GDP growth has a positive and significant effect on the NPL of commercial banks. Thus, the bankers and policymakers need to consider GDP growth carefully while taking NPL-related decisions.
Keywords
Commercial Banks; GDP; Nepal; Non-Performing Loan; Return on Asset;
Citations & Related Records
연도 인용수 순위
  • Reference
1 Bofondi, M., & Ropele, T. (2011). Macroeconomic determinants of bad loans: Evidence from Italian banks (Working Paper No 89/2011). Banca D'italia Eurosistema. https://www.bancaditalia.it/pu bblicazioni/qef/2011-0089/QEF_89.pdf
2 Boudriga, A., Taktak, N. B., & Jellouli, S. (2010). Bank specific, business and institutional environment determinants of banks nonperforming loans: Evidence from MENA countries (Working Paper 547). Economic Research Forum (ERF). https://doi.org/10.1017/CBO9781107415324.004   DOI
3 Breuer, J. B. (2006). Problem bank loans, conflicts of interest, and institutions. Journal of Financial Stability, 2(3), 266-285. https://doi.org/10.1016/j.jfs.2006.07.001   DOI
4 Brock, P. L., & Rojas Suarez, L. (2000). Understanding the behavior of bank spreads in Latin America. Journal of Development Economics, 63(1), 113-134. https://doi.org/10.1016/S0304-3878(00)00102-4   DOI
5 Cheng, M., Lee, C., Pham, Q. N. T., & Chen, H. (2016). Factors that affect NPL in the Taiwan banking industry. Journal of Accounting, Finance, and Economics, 6(1), 65-87. https://zantworldpress.com/wp-content/uploads/2019/12/5.-Mike.pdf
6 Cornett, M. M., Guo, L., Khaksari, S., & Tehranian, H. (2010). The impact of state ownership on performance differences in privately-owned versus state-owned banks: An international comparison. Journal of Financial Intermediation, 19(1), 74-94. https://doi.org/10.1016/j.jfi.2008.09.005   DOI
7 Ghosh, A. (2015). Banking-industry specific and regional economic determinants of non-performing loans: Evidence from US states. Journal of Financial Stability, 20, 93-104. https://doi.org/10.1016/j.jfs.2015.08.004   DOI
8 Gnawali, A. (2018). Non-performing asset and its effects on profitability of Nepalese commercial banks. National Journal of Arts, Commerce & Scientific Research Review, 5(9), 39-47. http://www.ijrbsm.org/papers/v5-i9/5.pdf
9 Laryea, E., Ntow-Gyamfi, M., & Alu, A. A. (2016). Nonperforming loans and bank profitability: evidence from an emerging market. African Journal of Economic and Management Studies, 7(4), 462-481. https://doi.org/10.1108/AJEMS-07-2015-0088   DOI
10 Khanifah, K., Hardiningsih, P., Darmaryantiko, A., Iryantik, I., & Udin, U. (2020). The effect of corporate governance disclosure on banking performance: Empirical evidence from Iran, Saudi Arabia, and Malaysia. Journal of Asian Finance, Economics, and Business, 7(3), 41-51. https://doi.org/10.13106/jafeb.2020.vol7.no3.41   DOI
11 Louzis, D. P., Vouldis, A. T., & Metaxas, V. L. (2012). Macroeconomic and bank-specific determinants of non-performing loans in Greece: A comparative study of mortgage, business, and consumer loan portfolios. Journal of Banking and Finance, 36(4), 1012-1027. https://doi.org/10.1016/j.j bankfin.2011.10.012   DOI
12 Makri, V., Tsagkanos, A., & Bellas, A. (2014). Determinants of non-performing loans: The case of Eurozone. Panoeconomicus, 61(2), 193-206. https://doi.org/10.2298/PAN1402193M   DOI
13 Maudos, J., & Guevara, J. F. (2004). Factors explaining the interest margin in the banking sectors of the European Union. Journal of Banking and Finance, 28(9), 2259-2281. https://doi.org/10.1016/j.jbankfin.2003.09.004   DOI
14 Messai, A. S., & Jouini, F. (2013). Micro and macro determinants of non-performing loans. International Journal of Economics and Financial Issues, 3(4), 852-860. https://doi.org/10.1300/J079v2 7n04_02   DOI
15 Rinaldi, L., & Arellano, A. S. (2006). What explains household non-performing loans? An empirical analysis (Working Paper No. 570). European Central Bank. https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp570.pdf
16 Tran, S. H., & Nguyen, L. T. (2020). Financial development, business cycle, and bank risk in Southeast Asian countries. Journal of Asian Finance, Economics, and Business, 7(3), 127-135. https://doi.org/10.13106/jafeb.2020.vol7.no3.127   DOI
17 Hu, J., Li, Y., & Chiu, Y. H. (2004). Ownership and loans: Evidence from Taiwanese banks and non-performing loans. The Developing Economies, 42(3), 405-420. https://doi.org/10.1111/j.1746-1049.2004.tb00945.x   DOI
18 Salas, V., & Saurina, J. (2002). Credit risk in two institutional regimes: Spanish commercial and savings banks. Journal of Financial Services Research, 22(3), 203-224. https://doi.org/10.1023/A:1019781109676   DOI
19 Shehzad, C. T., Haan, J. D., & Scholtens, B. (2010). The impact of bank ownership concentration on impaired loans and capital adequacy. Journal of Banking and Finance, 34(2), 399-408. https://doi.org/10.1016/j.jbankfin.2009.08.007   DOI
20 Stiglitz, J. E., & Weiss, A. (1981). Credit rationing in markets with imperfect competition. The American Economic Review, 71(3), 393-410. https://www.jstor.org/stable/1802787
21 Bhul, B. S., Khatri, B., Khadka, K., & Dhakal, S. (2016). Determinants of non-performing loan: Case of Nepalese commercial banks. Economic Journal of Development Issues, 19(1-2), 22-38. https://doi.org/10.3126/ejdi.v19i1-2.17700   DOI
22 Warue, B. N. (2013). The effects of bank-specific and macroeconomic factors on non-performing loans in commercial banks in Kenya: A comparative panel data analysis. Advances in Management & Applied Economics, 3(2), 135-164. http://www.scienpress.com/Upload/AMAE/Vol%203_2_7. pdf
23 Abidin, Z., Prabantarikso, R. M., Wardhani, R. A., & Endri, E. (2021). Analysis of bank efficiency between conventional banks and regional development banks in Indonesia. Journal of Asian Finance, Economics, and Business, 8(1), 741-750. https://doi.org/10.13106/jafeb.2021.vol8. no1.741   DOI
24 Beck, R., Jakubik, P., & Piloiu, A. (2013). Non-performing loans: What matters in addition to the economic cycle? In: European Central Bank working paper series (Issue 1515).
25 Berger, A. N., & Yong, R. De. (1997). Problem loans and cost efficiency in commercial banks. Journal of Banking and Finance, 21, 849-870. https://doi.org/10.17016/feds.1997.08   DOI
26 Bhattarai, S. (2017). Determinants of non-performing loans in Nepalese commercial banks. Economic Journal of Development Issues, 19(1), 22-38. https://doi.org/10.3126/ejdi.v19i1-2.17700   DOI
27 Bhattarai, Y. R. (2017). Effect of non-performing loans on the profitability of commercial banks in Nepal Yuga. Prestige International Journal of Management and Research, 10(2), 15-32. https://doi.org/10.1017/CBO9781107415324.004   DOI