1.

) Academic Journals in Finance Field

1. Journal of finance and bank management

2. Journal of empirical finance
3. Journal of finance
4. Journal of Applied Business Research
5. Journal of Financial Economics
6. The Journal of Portfolio Management
7. Journal of financial econometrics
8. The Journal of Risk
9. Journal of International Financial Market
10. Journal of Banking and Finance
11. International Journal of Economic and Financial Issues
12. Journal of Financial and Quantitative Analysis
13. The Journal of International Money and Finance
14. Journal of Financial Studies
15. Journal of Money, Credit and Banking.
16. Global Journal of Management and Business Research
17. Journal of Futures Markets
18. Journal of and Credit Cycles
19. Journal of Emerging Financial Markets
20. Journal of Risk Uncertainty
21. Research Journal of Finance and Accounting
22. Journal of Behavioral Finance
23. The Journal of Fixed Income
24. Journal of Investment Management
25. Journal of Financial and Quantitative Analysis.

26.
2.) Sri Lankan Academic Journals

1. Kelaniya Journal of Human Resource Management — Department of Human Resource

Management
2. Sri Lankan Journal of Infectious Diseases
3. Kelaniya Journal of Management - Faculty of Commerce & Management Studies
4. Sri Lanka Journal of Marketing — Department of Marketing Management
5. Wayamba Journal of Animal Science - Department of Livestock and Avian Sciences
6. Wayamba Journal of Management — Department of Business Management
7. Sri Lanka Journal of International Law — Faculty of Law, University of Colombo 
8. Journal of the College of Community Physicians of Sri Lanka

3. i) DETERMINANTS OF NON-PERFORMING LOANS IN LICENSED

COMMERCIAL BANKS: EVIDENCE FROM SRI LANKA

1. Approach

This study preliminary investigates the determinant factors of ex-post credit risk considering
non-performing loans (NPLs) and how it would cause for the determination of the level of NPL.
These factors are mainly divided into macro-economic and bank specific factors. Moreover, this
study conducts an analysis of NPLs behavior between three categories of banks namely, public
commercial banks, large private commercial banks and small private commercial banks during
the period of 1999-2012. Nine local LCBs have been included in the sample where unit of
analysis is organizations. Further, this study is conducted under the minimal researcher
interference.

2. Conceptualization

Same as most of the previous studies, this study also identifies mainly two types of factors that
affect for the NPL volume. One is overall macro-economic factors occurred by the external
events while the other is bank specific factors occurred due to variabilities pertaining across the
firm .

Macro-economic factors which were identified include such as Gross Domestic Production
(GDP) indicates negative relationship with NPL (Das and Ghosh, 2007; Al-Smadi and Ahmad,
2009). Economic growth and real exchange appreciation Fofack (2005), market interest rate
Jimenez and Saurina (2006), unemployment level Louzis et al. (2010) and lending interest rates
Warue (2013) are positively corelated with NPL level. However, contradictory results for market
interest rate was found by Al-Smadi and Ahmad (2009) showing that NPL ratio and market
interest rates are negatively correlated. Additionally, Warue (2013) and Al-Smadi and Ahmad
(2009) showed that inflation has an adverse impact on credit risk, which will indirectly result in a
rise of NPL levels of a bank.

Firm specific determinants such as credit growth in banks were discovered to have both a
positive and a negative impact upon NPL volume. Keeton (2003) and Das and Ghosh (2007)
showed a positive relationship between NPL and credit growth while Boudriga et al. (2009)
showed the existence of negative relationship between the said two variables. Kwan and
Eisenbis (1997) demonstrated an increase in inefficiencies can lead to an increase NPL ratio,
depicting a positive relationship. Similarly, the size of the bank Misra and Dhal (2010), capital
share owned by the bank Hu et al. (2006) and loan loss provision Boudriga et al. (2009) indicate
a positive relationship with the NPL volume. Godlewski (2004) concluded bank’s profitability
negatively impacts on the level of NPL ratio using Return on Assets (ROA) in his study.

Based on the empirical findings, following research objectives and questions were elaborated.

 Research objectives
1. Identify the factors of ex-post credit risk considering NPLs
2. Analyze how these factors will cause for determination of the level of NPL.
3. Identify is NPLS behavior between there categories public commercial banks, large,
private commercial banks and small private commercial banks.
 Research questions
1. What are the factors of ex-post credit risk considering n NPLs?
2. How these factors will cause the determination of the level of NPLs?
 3. What is NPLs behavior between three of categories public commercial banks, large
private commercial banks and small private commercial banks?

3. Hypothesis development

When constructing the hypotheses, the following factors and corresponding relationships were
considered.

Independent variable Relationship with Independent variable Relationship

the NPL ratio with the NPL
ratio
H1: operating expense to positive H7: annual unemployment positive
income (∆OPE i,t ) relationship rate (∆UNE t) relationship
H2 : ratio of loans to positive H8: average prime lending positive
total assets (∆LA i,t) relationship ratio (∆AWPR t) relationship
H3: provision for bad positive H9: ratio of net income to negative
and doubtful debt to relationship total assets of the bank relationship
gross loans to bank (∆OPE i,t )
(∆PLLi,t)
H4: growth in loans positive H10: annual growth in real negative
given by banks (∆GRL relationship GDP (∆GDP t) relationship
i,t-1 )
H5: NPLS of the positive H11: natural logarithm of negative
previous year (∆NPLP i, relationship size of the bank (∆lnSZE relationship
t-1) i,t)
H6: annual inflation positive
growth (∆INF t) relationship

Accordingly, regression model can be derived in following formula ,

NPL i, t = β1,i +β2∆GDP t + β3∆INF t + β4∆UNE t + β5∆AWPR t + β6∆OPE i,t + β7∆ROA i,t
+ β8∆LA i,t + β9∆PLLi,t + β10∆GRL i,t-1 + β11∆lnSZE i,t + β12∆NPLP i, t-1 + β13∆i,t
4. Method

4.1 Sampling

There were twenty-four LCBS in Sri Lanka at the end of 2013 comprising of twelve foreign and
local banks each. This study only considered nine local banks as the sample. Reason for
exclusion of the foreign banks was the variations in banking operations and accounting format
compared to domestic banks while removal of three local banks was due to less uniformity
shown for last fourteen years. Therefore, seven private LCBS and two public LCBS were taken
to the sample including six systematic importance banks (SIBS)

4.2 Data collection

Mainly, the secondary and quantitative data have been used for this study. Information on macro-
economic factors were collected from annual reports and other statistical reports of CBSL while
information on bank specific factors were from the annual reports of the above selected banks.

4.3 Variables

Non-performing loans are considered as the dependent variable and it includes all the
outstanding loans comes under categorization of overdue, substandard, doubtful and loss.
Independent variables include bank specific and macro-economic factors. Bank specific factors
such as efficiency, risk profile, loan growth, bank size and NPLs of the previous year and macro-
economic variables such as GDP growth, inflation, unemployment and lending rate were
considered.

4.4 Data Analysis

In carrying this study, statistical measure of regression model has been used and the statistical
results were calculated at, 99%, 95% and 90% confidence level.

4. Findings

Correlation of the firm specific factors resulted in 0.725, -0.609, 0.203, 0.271, -0.44, - 0.91,
0.543 for operating expense to income, ROA, loans to total assets, provision for bad and doubtful
debt to gross loans , growth in loans , size of the bank , NPLs of the previous year respectively
whereas, the correlation for macro-economic factors of growth in real GDP, annual inflation
growth rate, annual unemployment rate and average prime lending ratio are -0.789, -0.216,
0.300, 0.264 respectively. Positive correlation shows a positive relationship with NPLs to total
loans and negative correlation shows a negative relationship with NPLs to total loans.

According to the analysis, two hypotheses were rejected as annual inflation growth rate which is
a macroeconomic factor and the growth in the loans which is a firm specific factor, both
indicating a negative relationship with NPL. Also, four hypotheses were considered as less
significant.

5. Conclusion

Results of the regression analysis shows both macro and back specific factors would act as
determinants of NPLs. This study concludes loan to asset ratio , provision for loan losses
,lending rates and risk bearing behavior have a positive relationship with NPL ratio while credit
growth , efficiency (decrease in operating expenses ), size of the bank , GDP growth and
inflation rate of the country have a negative relationship with NPL ratio

Therefore, to mitigate the credit risk, this study has given essential suggestions such as carrying
out proper evaluation of credit applications and monitoring the repayment capacity and cashflow
of the borrowers closely.

In addition, it was found that small private banks have a higher NPL ratio than large private
banks while the lowest NPL ratio was maintained by the public banks.