Non-performing loans, Corporate Governance, Firm-

Specific attributes and Macro-economic determinants:

Evidence from Bangladesh

Mohammad Omar Faruq Tamanna Akter

Assistant Professor Post Graduate
Department of Accounting and Information Systems Department of Accounting and Information Systems
Faculty of Business Studies, Comilla University Faculty of Business Studies, Jahangirnagar University
Cumilla, Bangladesh Savar, Dhaka, Bangladesh

Md. Mosharraf Hossain Ishrat Jahan Ikra

Assistant Professor, Post Graduate
Department of Management Studies, Department of Accounting and Information Systems
Faculty of Business Studies, Comilla University Faculty of Business Studies, University of Dhaka
Cumilla Dhaka, Bangladesh

Lamina Binta Jahan

Assistant professor
Department of Accounting and Information Systems,
Faculty of Business Studies, Comilla University,
Cumilla, Bangladesh.

Abstract
This paper attempts to identify the key determinants of Non-performing Loans in Bangladesh for the listed banks.
The sample for the study includes all the listed banks from the year 2015 to 2021. Panel Data Random Effect
regression analysis has been used to assess the relationship above. The study’s findings suggest that Board Size
significantly reduces the existence of non-performing loans in Bangladesh. In addition, Capital Adequacy Ratio,
Return on Assets, Asset Turnover Ratio, GDP growth rate, Private Sector Credit Growth rate and Inflation
are a significant determinant of non-performing loan and possesses a negative relationship. From an overall
perspective, non-performing loan can be reduced through the use of larger boards, increased focus on firm specific
measures of performance and growth in private sector credit facilities. Future researches are recommended to
use additional controls for corporate governance to improve the explanatory power of the model.
Keywords: Non-Performing Loan, Corporate Governance, Panel Data, DSE (Dhaka Stock Exchange).

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1.0 Introduction
The global financial crisis led to the reformation of
the banking industry. In the past couple of years,
due to the financial crisis and COVID-19 pandemic
time, numerous countries have suffered big time.
Soedarmono, Machrouh and Tarazi (2011) stated that
money laundering and excessive outflow of economic
benefits from importing caused many East Asian
countries to suffer significantly. Financing with outside
capital is tough in emerging economies as they suffer
from inefficient and lowly developed financial markets
(Godlewski, 2005). NPL (Non-Performing Loan) is
a health indicator of any given financial ecosystem.
A higher level of NPL indicates a weak market
structure resulting in a crumbled national economy. In
comparison, a low level of NPL is characterised as an
efficient one and ensures expansion of credit growth
(Feijó, 2011). NPL is a great cause of the financial crisis
(Amin, Imam & Malik, 2019). Non-performing Loan
(NPL) has become a major concern for the banking
industry, especially in developing countries. Bank’s
survival capacity and profitability are highly affected by
the volume of NPL (Roy, Dey & Bhowmik, 2014)
Correspondingly, the NPL ratio is an indicator of a
bank’s credit policy failure (Saba, Kouser & Azeem,
2012). During the post-pandemic time and the
Russia-Ukraine war, international trading relationships
are impacted and causing the default of loans and
mortgages. Loan or mortgage default is caused by a
borrower’s low-level repayment capacity, decreased
per capita income, high rate of interest, the extremely
flexible policy of credit rationing and weak monitoring
policy of central regulatory bodies and internal
systems of banks (Saba et al., 2012; Ivanović, 2016).
Increasing non-performing loans are diminishing
banks’ earnings, prolonging instability and down-
turning economic growth (Partovi & Matousek,
2019). Khan, Siddique and Sarwar (2020) stated
that unpaid loans and advances are called NPL. IMF
(International Monetary Fund) explained that loans
and advances, if they fail to generate interest and
main principal value for 90 days of minimum time, are
considered non-performing loans (NPLs). An unpaid
loan amount with due interest payment on the date
of maturity is called NPL. With its wide impact, the
non-performing loan is quoted as ‘financial pollution’
(Makri, Tsagkanos & Bellas, 2014; Ghosh, 2015).
Historically various countries and economic regions
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have witnessed such pollution with incidental effects.
For example, during the 1980s saving and loan crisis
in the USA, the NPL cycle in Asian countries in the
1990s in the last century (Saba et al., 2012), and in
this era global economic crisis in 2008-2009 (Manz,
2019), and a recent addition is COVID-19 pandemic
(Ahmed, Majeed, Thalassinos & Thalassinos, 2021)
and the ongoing regional war in Euro-zone. Rising
NPL originated sharply from increasing mortgage
loan defaults in the US economy (Manz, 2019)
and excessive risk of credit (Ghosh, 2015). Strong
monetary system and control mechanisms reflect
lower NPL ratio, and increased non-performing ratio
signals weak financial and management systems of a
bank (Khan et al., 2020; Ahmed et al., 2021). Vouldis
and Louzis (2018) quoted that commercial banks
firstly get impacted by non-performing loan ratio
and, in the long-run country’s economic condition
get hampered. Financial Reporting Council (FRC)
establishment, the central bank’s independence from
the Bangladesh government for regulating commercial
banks, ensuring operational stability and enhancing
the efficiency of the banking companies (Roy et al.,
2014). Williams (2004) detected that capitalisation,
management efficiency and behavioural modes of top
management are causing bad loans in the European
banking industry. So, following the corporate
governance guidelines of 2018 in the Bangladesh
context can be helpful in ensuring shareholder interest
protection and asset quality. Manz (2019) pointed out
that bank-specific and macroeconomic variables still
have to lack profound understanding and requires
additional variables and circumstance to cover with
empirical research.
1.1 Institutional background of the Banking
industry in Bangladesh
The development of the banking industry is boosting
the rapid growth of Bangladesh’s economy. The country
has observed spectacular growth and expansion of
the banking sector. With microfinance and mobile
banking systems, the monetary system is expanded
in rural areas, and financial inclusion is ensured. The
financial system of Bangladesh is comprised of three
sub-sectors: formal, semi-formal and informal. Banks
and non-banking financial institutions are part of the
formal sector to be regulated by Bangladesh Bank.
Bangladesh bank is the regulatory authority of the
money market and foreign exchange market. The
bank was established on December 16, 1971, with empirical models. Chapter four provides the output
the Bangladesh Bank order-1972 as a corporate of various statistical and econometric analyses. In the
regulatory body1. There are primarily two types of final chapter, we have summarised our study with
banks under Bangladesh Bank: scheduled banks and reference to future research orientation and current
non-scheduled banks. limitations.
The Bangladesh Bank website directs that the
scheduled bank classification includes six state-
2.0 Literature review and development
owned commercial banks, three specialised banks,
43 private commercial banks, 33 conventional private
of testable hypothesis
Recent pandemic outbreaks and regional wars have
commercial banks, 10 Islamic Shariah-based private
sparked researchers’ interest in understanding the
commercial banks, and nine foreign commercial banks
existing and potential drivers of non-performing
as of the year ended 2022. Subsequently, there are
loans in different economic regions. For country-
five non-scheduled banks in the banking sector of
specific or cross-country analysis, panel data study is
Bangladesh. All the banks are operated under the
widely used (Saba et al., 2012). The prior literature
direct supervision and full control of Bangladesh bank
on the determinants of NPL is mainly based on wide
through Bangladesh bank order-1972 and Banking
theoretical models to cover the business cycle of
Companies Act-1991. A non-performing loan is
the banking industry with an explicit role in financial
increasing in Bangladesh as business enterprises are
excellency.
defaulting or near to being defaulted. It has become
a threat for banks to achieve sustainable economic
growth as the banking system is facing a slow-motion 2.1 Theoretical framework of Non-performing Loan
financial crisis. Non-performing loans are seen as the most important
factor in a bank’s productivity and profitability. When
Roy et al. (2014) conducted their study on the
there are more non-performing loans, the bank has
banking industry of Bangladesh during the period of
to set aside more money and write off more bad
2004 to 2013 that examined the macroeconomic
debt. Increasing NPL also affects the capital structure,
determinants of the NPL ratio. The inclusive
asset management, and profitability of banks. The
macroeconomic variables are the GDP growth rate,
hilarious consequence is that non-performing loans
inflation rate and interest spread rate in Bangladesh’s
are increasing relative to the capital structure of
economy. Khatun and Ghosh (2019) evaluated the
a large number of banks, which compounds the
relationship between corporate governance variables
banks’ extreme financial crisis. According to empirical
and the non-performing loan ratio in Bangladesh.
research (Ombaba, 2013; Kingu et al., 2018), the higher
The considered corporate governance variables are
the non-performing loans, the lower the operational
Board size, the number of independent directors, the
management efficiency and profitability. So, the four
independence of the audit committee and the role of
prime theoretical perspectives (Agency Theory,
the chairman. In both of the papers in the Bangladesh
Bad Management Theory, Stakeholders Theory,
banking industry context, bank-specific variables are
and Information Asymmetry Theory) signified this
not considered, while prior literature in the emerging
research as well as the hypotheses used to examine
economy context (Rajha, 2016; Tanasković & Jandrić,
the relationship of a non-performing loan with
2015; Umar & Sun, 2018) conducted their study on
corporate governance, firm-specific determinants,
the macro-economic and bank-specific determinants
and macro-economic determinants.
of non-performing loan ratio.
This study is organised as follows. The second
chapter of the study discusses the various relevant Stakeholders Theory
theories and literature that are prevalent in the field In 1984, the “stakeholders’ theory” was given the
of study. Additionally, on the basis of past studies spotlight as a tool to make decisions. The theory’s main
and theories, we have developed the hypotheses thrust is to strike a balance between the interests of
for our study. In the next chapter, we have briefly all stakeholders, which are affected by each and every
discussed the methodology adopted for the analysis decision of a well-established business establishment,
of the relationships with reference to the data and in order to achieve well-designed strategic business

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goals. The theory defined stakeholders as “individuals
or any group who can affect or get affected by the
achievement of an organization’s objectives” (Freeman,
1999). In addition, stakeholders have a legal claim to
the establishment. Freeman et al. (2010) suggests that
in modern times, stakeholders have emphasized that
the organization’s management possesses a long-term
network of value-added and effective relationships
with employees, business partners, and suppliers.
To mitigate risks, this value-added relationship of
related parties is far more significant and influential
than the principal-agent relationship of agency theory.
To protect all stakeholders’ value, a well-designed
corporate governance mechanism is required to
mitigate information asymmetry, enhance supervisory
control, and monitor management’s self-interest
behavior (Khan et al., 2020). Corporate governance
has the main aim of aligning shareholders’ interests
with organizational goals and designing an efficient
and effective mechanism for ensuring managers’
accountability for their operational decisions
(Balagobei, 2019).
Furthermore, stakeholders’ theory has broadened
the limitations of firing employees and joblessness
during the economic recession by incorporating
other contracts, such as revenue-related or funding-
related contracts (Christaria & Kurnia, 2016). So, the
stakeholders’ theory is important because the top
management has to clearly define the goals of the
organization that can best explain the interests of all
stakeholders as well as cope with country-specific
macro-economic conditions for the well-being of
stakeholders.
Agency Theory
Ross and Mitnick are the famous researchers who
developed the agency theory in 1973. Here, the
agency theory has greater concern about the agent-
principal relationship. Shareholders or owners are
called principals, while the management team is
treated as an agent, and the contractual relationship
between the parties is called an agency relationship.
Riadi (2018) discussed that the principal provides
a mandate to agents for acting on their behalf, and
agents are obliged to perform all the responsibilities
for which they are provided with the mandate.
In the banking sector, managers are the agents and
shareholders are the principals, while they relinquish
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power of attorney for making business decisions to
managers. To maximize the value of the organization
as well as shareholder wealth, managers of banks are
expected to make effective decisions for increasing
productivity and profitability as well as avoid conflict
of interests with stakeholders (Akter and Roy, 2017).
As the stakeholder’s resources are delegated to the
agents of banks, a number of conflicting issues arise.
The stakeholder theory points out that information
asymmetry and conflict of interest (principal-agent
relationship dilemma) may occur in this circumstance
(Riadi, 2018). Principal-agent problems in terms of
moral hazard happen when agents work for their own
interests instead of the principal’s. At the same time,
principals incur agency costs such as external audits by
a renowned audit firm to monitor agents inside trading
and self-interested activities. It has become necessary
to assess the achievement of stakeholder interests
and manager actions through effective corporate
governance mechanisms. As a result, agency theory
validates this study on non-performing loans, as
managers may embarrass themselves by engaging in
self-serving activities while jeopardizing the interests
of stakeholders.
Bad management theory
Berger and DeYoung (1997) suggested that bad
management theory was developed to demonstrate
the relationship between a bank’s cost efficiency and
NPL ratio. Poor management, according to the bad
management concept, leads to low-cost efficiency
and questioned loan underwriting and monitoring
mechanisms (Tanaskovi & Jandri, 2015). The NPL
ratio in the Turkish banking industry is rising due
to technical inefficiency, which supports the bad
management theory (Boudriga et al., 2010). Bank
management may be more responsive to incentives
by enhancing the bank’s loan portfolio, which will
finally increase the NPL ratio (Klein 2013). The bank’s
management team may be inefficient in evaluating the
credit applications of customers, granting loans, and
managing the loan portfolio, which will result in rising
non-performing loans.
Bad and inefficient management can be the result
of agency conflict between stakeholders and bank
management. Tanasković and Jandrić (2015) found
that due to bad management and agency conflict,
information asymmetry is created between creditors
or investors and bank management. The 2018
corporate governance guidelines were issued with
the purpose of ensuring information symmetry in the
stock market. To reduce agency conflict and the impact
of bad management, in our analysis, we consider the
corporate governance and firm-specific determinants
of the non-performing loan ratio.
Information asymmetry theory
The information asymmetry theory states that
information asymmetry occurs when, in a transaction,
one party has transaction-related information
over another party (Kingu et al., 2018). Because of
the information gap between two parties, earlier
literature on asymmetric information always looked
for the impact of the information gap on business
decisions. Borrowers collect funding from creditors to
face business risks with the certainty of repayment,
though creditors have no clue about the borrower’s
actions and characteristics. So, both parties (borrower
and creditor) of a transaction are expected to have
balanced information regarding the transaction before
it proceeds, unless one party with more material
information may cause the issue of adverse selection.
Furthermore, adverse selection illustrates the worst
implication of bad management decisions on loan
management and cost control and management
(Makri et al., 2014).
Adverse selection consequently leads to a situation
where low-quality borrowers displace the high-quality
borrowers, and in the long run, it causes deterioration
of the quality of banking loan portfolio management
and non-performing loan accumulation, deduction
of profitability, and withdrawal of capital (Bofondi &
Ropele, 2011; Aronokhale, 2022). Also, information
asymmetry arises when one party is engaged in risky
business decisions because of macro-economic or
bank-specific conditions, even though the decisions
aren’t affected by the outcomes.
2.2 Non-performing Loan
Researchers, in their earlier research, tried to cover
up the widespread and contemporary issues of the
banking industry. Due to its significance, NPL has an
impact on bank survival and profitability. As we are
discussing the determinants of NPL, various categories
of factors are involved. Firstly, macroeconomic
factors, bank-specific variables and governance-
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related variables. In our study, macroeconomic
variables are- GDP growth rate, Private Sector Credit
Growth and Inflation Rate; Bank Specific Variables-
Capital Adequacy Ratio, Loan Deposit Ratio, Return
on Asset, Asset Turnover Ratio, Bank Size in terms
of total asset and Leverage (Debt to Asset ratio);
and lastly corporate governance related variables
are Board Size, Board Meeting Frequency, Board
Independence and Board Gender Diversity. Here,
below we are going to discuss empirical literature on
the association of all these factors with the rate of
NPL.
Meeker and Gray (1987) mentioned that general
people got the opportunity to evaluate asset quality
in terms of non-performing loans first time ever in
1983. Their analysis also resulted in the classification
of loans as bad loans or non-performing loans, aiding
the examination of the bank’s asset quality.
From 1984-2013 all banking and financial institutes in
the USA faced an increased rate of non-performing
loans due to bank-specific, state-level and regional
economic factors. Ghosh (2015), using GMM
estimators, found out that capital adequacy, weak
credit quality, inefficiency of cost management, firm,
as well as industry size, are significantly increasing NPL,
but bank profitability has a negative impact on the
NPL ratio. Among all the macroeconomic variables,
the GDP growth rate decreases the NPL ratio. On the
other hand, Inflation and public financing significantly
increase the NPL ratio (Ghosh, 2015; Manz, 2019).
Following the blending approach of bank-specific and
macroeconomic variables, Saba et al. (2012) found
that GDP growth rate, inflation rate and total loan
volume have a significant impact on non-performing
loans during the period of 1985-2010 in the US
economy. A suggestion is made to amend the credit
control policy and improve monitoring mechanisms to
lower the rate of non-performing loans.
After the financial crisis, various banks of the European
economic zone suffered from acute loan distress,
even subsequent recovery couldn’t cover up loan
losses, and banks are dramatically fallen behind other
advanced economies.
Tölö and Virén (2021) conducted an analysis of post-
economic crisis time during the period of 2014-2019
to find out how the NPL ratio is hindering the bank
loan in Europe over 200 banking companies in 30
countries. The analysis resulted out that increasing
NPL is downing bank profit, raising financing costs and
risking capital adequacy for banks.
There is always a cause and effect of a bank’s financial
crisis, the recession after COVID-19 has had a
considerable impact on increasing the NPL ratio and
weakening the financial health of banking companies
in Europe (Ari, Chen & Ratnovski, 2021).
In the European banking companies for the period of
19990-2015, Dimitrios, Helen and Mike (2016) found
that GDP growth has a strongly significant relation to
NPL ratio while bank-specific variables such as ROA
and leverage also significantly shape the level of NPL.
2.3 Non-Performing Loan and Corporate Governance
To disclose all required information to shareholders
and prevent fraudulent financial reporting Sarbanes-
Oxley act 2002 was passed. Corporate governance
is receiving extensive importance due to fraud of
management and several financial crimes during the
past decade in developed economies. Tarchouna,
Jarraya and Bouri (2017) revealed that recognition
and prevention of excessive risky appetites in the
banking sector are quite impossible with ineffective
governance structure and mechanisms. The small-
sized commercial banks of the US have sound
governance systems to reduce NPL, while medium
and large-sized banks are allowing loans on excessively
risky projects and are headed to enormous loan
losses. For better governance, small-sized banks rely
on personal connections and experts, while large-
sized banks have neutralised governance systems. So,
in further analysis, Tarchouna et al. (2022) found that
the influence of corporate governance on loan quality
is highly influenced by the size of the banks in the USA.
In an emerging country in South-East Asia, Sri Lanka
is going through an immense economic recession
and a rising rate of Inflation ever in the history of
the country. Balagobei (2019) demonstrated that
boardroom activities have a significant impact on the
NPL ratio. While board size, board independence
and role duality of the CEO have an insignificant
impact on non-performing loans. Irawati, Maksum,
Sadalia and Muda (2019) conducted an analysis of the
banking companies in Indonesia to justify the impact
of NPL On a bank’s financial performance and found
that capital adequacy has a statistically significant and
positive impact on a bank’s financial performance,
though NPL has a statistically insignificant and negative
correlation with the financial performance of banks.
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Quality of loan and bank performance stability is
enhanced by good corporate governance mechanisms.
If the banking regulatory body imposes strict policy,
then it negatively triggers the NPL ratio and curbs the
appetite for excessive loan risk. Adegboye, Ojeka and
Adegboye (2020) have shown that good corporate
governance mechanisms have a statistically significant
effect on the NPL ratio of the Nigerian banking
sector. Khatun and Ghosh (2019) conducted a study
on corporate governance-oriented determinants of
the NPL ratio in the banking industry of Bangladesh
for the period of 2008-2017 and found that NPL has
a statistically significant and positive correlation with
corporate governance-oriented determinants. So,
with good governance and quality mechanisms, it is
possible to reduce the rate of NPL in the Bangladeshi
banking industry.
2.4 Non-Performing Loan and Bank-Specific
attributes
NPL is negatively influential on a bank’s profitability
in terms of return on assets (ROA) and positively
influential on provisions for loan loss reserve to total
sanctioned loans in the European countries after the
financial crisis in 2008 (Messai & Jouini, 2013). With the
GMM estimator, as NPL is increasing in the Pakistan
banking industry, Ahmed et al. (2021) attempt first to
examine the link among macroeconomic, bank-related
and non-performing loans in the emerging economic
context. Bank-related variables, including credit
growth and provision for loan loss, have a significant
positive impact on NPL; other variables, such as ROA,
bank size and operating efficiency, decrease non-
performing loans. In the Taiwanese banking industry,
Hu, Li and CHIU (2006) demonstrated that bank
size in terms of total assets is negatively associated
with NPL. Increased NPL ratio hampers the capital
adequacy, bank profitability and financing costs of
the industry (Aiyar, Calomiris & Wieladek, 2015).
The mechanism of holding increased provisions for
bad debt and lower revenue is actually deteriorating
the bank’s profitability. Deteriorated profitability
stimulates banks to raise financing costs, which triggers
operational expenses and again, profitability gets
lower. If banks can increase interest income, as well as
increase financing costs directly, that will enhance the
rate of lending and trigger the lending amount. Banks
view capital adequacy, and profitability rates have a
high impact on loan sanctioning. Dagher, Dell’Ariccia,
Laeven, Ratnovski and Tong (2016) explained that
higher buffering of capital and higher interest income
work positively for banks to avoid the issue of new
equity for financing and keeping down lending costs.
Vinh (2017) found that higher capital adequacy and
profitability lead banks to increase lending growth. On
the other hand, Dagher et al. (2016) found that banks
with weak profitability tend to grant less volume of
loans. Both of the findings are consistent with three
factors of Aiyar et al. (2015) for standard credit
channels. The listed Pakistani Commercial banks
also suffered from increasing NPL ratios during the
period of 2005-2017. Khan et al. (2020) found that
bank profitability and operational efficiency have a
significantly negative correlation with NPL, while the
capital adequacy ratio has a statistically insignificant and
negative correlation with NPL. Partovi and Matousek
(2019) found that the operational and technical
efficiency of Turkish banks is highly dependent on the
firm’s ownership structure.
2.5 Non-Performing Loan and Macro-economic
variables
During the period 2006-2016, World Bank and
International Monetary Fund (IMF) reported that
NPLs have a significant role in bank stability and credit
quality in the transition countries. Mazreku, Morina,
Misiri, Spiteri and Grima (2018) found that Inflation
and GDP growth rate are significantly and negatively
related to NPLs rate, though the unemployment rate
is related positively. The equilibrium value of NPLs in
Chinese state-owned banks is significantly dependent
on Chinese macroeconomic variables (Zeng, 2012).
A global study conducted by Beck, Jakubik and Piloiu
(2015) found that major macroeconomic variables,
foreign exchange rate, GDP growth rate, and prices
of shares have an impact on NPLs rate, while the
impact direction is dependent on lending on foreign
exchange.
In the share market in the global context, the share
price is dependent on the stock market size to GDP
and the ownership structure of the banks. In the earlier
period of the financial crisis in 2008-2009 in the top
three economies of Europe (Italy, Spain and Greece),
Non-performing loans (NPL) were negatively
correlated with GDP growth rate and positively with
the real rate of interest (Messai & Jouini, 2013).
Škarica (2014) has conducted a panel data regression
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over seven CEE countries (Hungary, Romania, Croatia,
Bulgaria, Latvia, Slovakia and Czech Republic), and the
suggested result is economic slowdown is the cause of
increasing NPL for the period of 2007-2012. GDP and
inflation rate have a significant impact on NPL with a
large coefficient value. In their earlier study, Roy et al.
(2014) regarding the banking industry of Bangladesh
evaluated the impact of macroeconomic variables on
the NPL ratio. Consequently, found that the inflation
rate positively affects NPL while the GDP growth rate
is negatively related to NPL. The findings support the
theoretical relationship of NPL with macroeconomic
factors in the Bangladeshi banking sector. In the
Taiwanese banking industry, Hu et al. (2006) found that
government ownership in private banks reduces the
NPL ratio. Farhan, Sattar, Chaudhry and Khalil (2012)
conducted a study on the Pakistani banking sector
since 2006 which resulted in Inflation and interest
rate having a positive correlation with NPL, but the
GDP growth rate negatively correlated with the NPL
ratio. Similarly, Inflation has a positive correlation
with an increased rate of NPL in the UK (Hoggarth,
Sorensen & Zicchino, 2005). Controversially, in Latin
American countries, Adivojević et al. (2019) found
that macroeconomic variables (GDP growth rate and
inflation rate) and microeconomics variables (capital
adequacy ratio and loan-to-asset ratio) have an
insignificant impact on the NPL ratio.
As the European economy was the middle point of
the unprecedented crisis in 2008-2009, Makri et
al. (2014) found that capital adequacy ratio (CAR),
return on assets (ROA) and return on equity (ROE)
are significantly correlated with non-performing loans,
other hand macroeconomic variables such as GDP
rate and public financing have strong relation with
non-performing loans. Umar and Sun (2018), using
panel data regression on Chinese banking companies,
resulted out that types of variables vary according to the
listed or non-listed banking industry. Macroeconomic
variables for determining NPL in the listed-banking
industry include credit quality, risk-taking behaviour of
banks and GDP growth rate, while in the non-listed
banking industry, foreign exchange rate and inflation
rate are also considered. The findings indicate that
bank-related or macroeconomic variables are not the
only and most appropriate approach in determining a
Non-performing Loan (NPL) but also for drawing an
error-free and correct conclusion. In the developing
economic context of Jordan, the loan-to-assets ratio is
positively related to NPL, while economic growth and
inflation rate have a significant and negative impact on
NPLs (Rajha, 2016). The financial crisis in the global
market has impact on Jordanian banking industry even
though banks are not operating that effectively for
loan screening. In the SEE and CEFC countries for the
period of 2006-2013, Tanasković and Jandrić (2015)
found that GDP is negatively correlated with the NPL
ratio. On the other hand, Inflation has statistically
no significant impact on NPL. An interesting finding
is that the development of the financial market has
a significantly negative correlation with NPL as a
lower NPL ratio with increased financial market
development. Kauko (2012) conducted a cross-nation
analysis of 34 countries with the data set from the
IMF (international monetary fund) and found that the
current deficit of depositors’ accounts in the banks,
along with rapid loan growth, has a contributory
impact on the rising amount of NPL.
2.6 Knowledge gap
Past studies have used an insufficient number of
controls for corporate governance and firm-specific
attributes (Khatun & Ghosh, 2019). In Bangladesh,
there is an absence of strong governance measures.
As a result, in any research design, corporate
governance variables should be used to identify
the causes of non-performing loans (Towhid et
al., 2019). Hosen et al. (2020) recommended that
future researches include a longer time period and
additional variables. Amin et al. (2021) urged the
inclusion of corporate governance along with other
variables to improve the explanatory power of the
study model. Akter et al. (2021) suggested that for
deeper insights, large data sets and variables such
as bank-specific and macro-economic determinants
should be used together within the same research
model. Hence, there is a knowledge gap to be filled
in respect of using a long time period, more variables,
and the inclusion of all three dimensions (corporate
governance, firm specifics, and macroeconomics)
within a single research model. Our study contributes
to the existing literature by answering the specific
question: Which corporate governance, firm-specific,
and macroeconomic factors can lower the likelihood
of non-performing loans? For a holistic perspective,
we have utilized relevant corporate governance, firm-
specific, and macroeconomic aspects over a longer
time span in our analysis to fill the current knowledge
gap.
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2.7 Development of testable hypothesis
Corporate governance and non-performing loans
Few authors have assessed the effect of corporate
governance attributes on non-performing loans using a
composite index (Tarchouna et al., 2017). The findings
of their study suggest that small banks in the United
States are successful in reducing NPL using proper
corporate governance mechanisms. Well-structured
corporate governance mechanism is deemed to
reduce the ratio of NPL in banks (Adegboye, Ojeka,
& Adegboye, 2020). In addition, the authors have also
noted that there is an insignificant amount of literature
that explores the relationship between corporate
governance and NPL in emerging economy settings.
Effective corporate governance mechanisms can
reduce the inherent agency problem, and this is rarely
discussed in the light of NPL (Lee, Chen, Chang & Chen,
2022). Drawing reference to the previous studies, we
expect that corporate governance attributes will be
inversely related to NPL. Contrary to the previous
studies, we have used various indicators of corporate
governance measures separately to identify the most
crucial piece of determinants. However, we have also
assumed that the Corporate Governance attributes
possess similar essence in influencing NPL, for which
we expect these to behave similarly. Hence, we
develop the following hypotheses.
H1: The relationship between various corporate
governance attributes and the NPL ratio is
expected to be negative.
Bank Specific attributes and non-performing
loans
Various studies in the past have assessed the impact
of bank-specific attributes on the level of NPL. We
have also deployed several measures of bank-specific
factors to achieve a complete view of the situation. As
a corollary to the aforementioned discussion, in the
following discussion, we will outline a brief description
of the measures that are used.
CAR (Capital Adequacy Ratio)
A stable banking operation can effectively safeguard
depositors from any unwanted circumstances (Khan
et al., 2020). Central banks or regulators can ensure
that there is an effective mechanism put in place
that safeguards the interest of numerous agents
(Ghosh, 2015). Solvency is the key determinant for
a stable banking operation. The solvency of a bank
is quantified using the Capital Adequacy Ratio (Koju,
Koju, & Wang, 2018). Bangladesh Bank requires that
all the listed banks report and maintain 10 per cent
of their total RWA (Risk Weighted Assets) as CAR.
Previous literature has found that there is an inverse
relationship between the CAR and NPL (Makri et al.,
2014; Kumar & Kishore, 2019; Koju, Koju & Wang,
2018). Consequently, we also expect a negative
relationship between CAR and NPL.
H2: The relationship between Capital Adequacy
Ratio and the NPL ratio is expected to be negative.
LDR (Loan to Deposit Ratio)
Bank liquidity is also one of the key factors that banks
may face challenges with in difficult times. The LDR is
a measure to assess the liquidity position of a given
bank. A large value of LDR indicates proper utilisation
of deposits for revenue generation, which results in
a reduced amount of bad loans (Koju et al., 2018).
Previous studies have found an inverse relationship
between LDR and NPL ( Jameel, 2014; Anjom &
Karim, 2016). We expect that increase in LDR will
reduce the chance of NPL in the banking industry of
Bangladesh.
H3: The association between the Loan to Deposit
Ratio and the NPL ratio is expected to be
negative.
ROA (Return on Assets)
Profitable banks enjoy more comfort while investing in
risky projects (Koju et al., 2018). ROA is widely used
to measure bank profitability, where a large value of
ROA indicates a stable banking environment (Khan et
al., 2020). ROA is found to be negatively correlated
with NPL in previous literature (Boudriga, Boulila
Taktak & Jellouli, 2009; Khan et al., 2020). Hence, we
assume the following hypothesis.
H4: The relationship between Return on Assets
and NPL ratio is expected to be negative.
ATO (Asset Turnover Ratio)
This study further uses the ATO as a measure to quantify
the ability of asset utilisation by banks. Literature
supports that ATO provides a measure for productivity
and prediction of future profitability (Fairfield & Yohn,
2001). In other studies, ATO is commonly used as a
measure of efficiency (Chowdhury, Rana & Azim,
2019). We expect that productive banks, aka efficient
banks, will have lower NPL.
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H5: The relationship between Asset Turnover
Ratio and the NPL ratio is expected to be
negative.
SIZE (Total Assets)
Bank Size mirrors the level of strength that a bank
possesses in terms of its skilled manpower and
available financial resources (Koju et al., 2018).
Larger banks are highly unlikely to fail in the long run.
Following the study of Tarchouna et al. (2022), we
have also measured bank size as the natural logarithm
of the total assets of a bank for a particular year. We
have assumed a negative association between SIZE
and NPL ratio based on the previous studies that are
developed upon the explanation of diversification
(Biekpe, 2011; Salas & Saurina, 2002).
H6: The relationship between Firm Size and NPL
ratio is expected to be negative.
LEV (Leverage)
Leverage is an important determinant of NPL (Ghosh,
2005; Umar & Sun, 2018). The leverage ratio measures
the level of solvency that is present in a given bank
(Serrano, 2021). Kim Quoc Trung (2022) found a
significantly negative association between LEV and
NPL. We have also assumed the negative association
between LEV and NPL.
H7: The relationship between Leverage and NPL
ratio is expected to be negative.
Macro-economic Variables and Non-performing
Loan
GDPG (Gross Domestic Product Growth Rate)
We have used several macroeconomic control
variables to control for any unobserved effect
arising from the general economic condition. GDPG
can improve the situation of bad loans with newer
employment opportunities. Previous studies have
found a significantly negative impact of GDPG on NPL
(Louzis, Vouldis & Metaxas, 2012; Koju et al., 2018).
Hence, we expect that the growth of the economy
can reduce the NPL.
H8: The relationship between Gross Domestic
Product Growth Rate and the NPL ratio is
expected to be negative.
PCG (Private Sector Credit Growth)
Rachman, Kadarusman, Anggriono and Setiadi (2018)
found an inverse relationship between PCG and NPL.
Similarly, other studies have also found that growth in
private-sector credit essentially reduces the chance of
NPL. Banks lend credit when the borrower has a good rating score in terms of credit and management of risks.
Hence, the growth of credit in the private sector may indicate that fund management is also in check and balance
to reduce the possibility of bad loans.
H9: The relationship between Private Sector Credit Growth and NPL ratio is expected to be negative.
INF (Inflation)
Inflation is defined as the price level increase in an economy (Koju et al., 2018). The rate of inflation measures
whether an economy is stable or not. The findings of the previous study are mixed in terms of the impact of
Inflation (Škarica, 2014). A higher level of Inflation is associated with a weakened economic condition. However,
the level of money supply will also increase, which means more opportunities for business and employment.
Inflation and the supply of money are closely related (Van, 2019). Vogiazas & Nikolaidou (2011) have observed
an inverse relationship between INF and NPL.
H10: The relationship between Inflation and the NPL ratio can be positive or negative.

Figure1: Conceptual Model for the Study

3.0 Methodology:
3.1 Data
Our dataset is sourced from secondary sources. We have used the annual reports published by listed banks
on their respective websites. In addition, we have also used the API of BIZDATA Insights (https://data.
bizdatainsights.com/) for data extraction, which is the country’s first complete data terminal for banks and
related industries. We have selected all the listed banks under DSE (Dhaka Stock Exchange) for our study. There
are 33 listed banks under DSE. We have dropped ICB Islamic Bank Limited from our sample due to insufficient
data. Our study period ranges from 2015 to 2021. Hence, our final sample results in 224 firm-year observations.

3.2 Empirical Model

We have tested our empirical model using panel data econometric analysis, which is superior to Pooled OLS
(Ordinary Least Squares) method for several reasons. In addition, we have used robust standard errors clustered
by banks to weed out the chance of autocorrelation and heteroskedasticity. Panel data diagnostic tests support
the use of the RE (Random Effect) parameter estimation technique. We have motivation from the past papers
(Ghosh, 2015; Umar & Sun, 2018; Partovi & Matousek, 2019; Manz, 2019; Khan et al., 2020; Tarchouna, Jarraya
& Bouri, 2022) to design our empirical model.

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Our first model [1] will test the relationship between Corporate Governance attributes and Non-performing
Loans.
NPLit =β0+β1BSIZEit+β2BMEETit+β3BINDit+β4BGDIVit+Year Dummies+εit …....[1]
We have further developed an equation [2] to assess the linear impact of Banks specific attributes on non-
performing loans in the banking industry.
NPLitγ0+γ1CARit+γ2LDRit+3ROAit+γ4ATOit+γ5SIZEit+γ6LEVit+Year Dummies+εit ……... [2]
Our final model [3] will combinedly assess the relationships previously developed in the model [1] and [2] along
with a few macroeconomic variables for a comprehensive overview. We are primarily interested in our model
[3] as it takes into account the various possible determinants of non-performing loans.
NPLit=λ0+λ1BSIZEit+λ2BMEETit+λ3BINDit+λ4BGDIVit+λ5CARit+λ6LDRit+λ7ROAit+λ8ATOit
+λ9SIZEit+λ10LEVit+λ11GDPGit+λ12PCGit+λ13INFit+Year Dummies+εit ……... [3]
We have also used year-effect dummies for a more accurate prediction of the model. Our dataset ranges from
the year 2015 to 2021. Our models are analysed using STATA 17 econometric software. Furthermore, in the
robust analysis section, we have used GEE (Generalized Estimating Equations) method for further clarification.
Detailed definitions of the variables used in the study are listed in Table I.

Table: I Variable Descriptions

Variables Measure Definition Source
Non-Performing The ratio of Non-Performing Loan to Total
NPL Annual Report
Loan Ratio Loans and Advances.
The total number of members in the
BSIZE Board Size Annual Report
boardroom.
Total Number of Board Meetings Held in a
BMEET Board Meeting Annual Report
Year.
The ratio of Independent Members to Total
BIND Board Independence Annual Report
Board of Directors.
Board Gender The ratio of Female Members to Total Board
BGDIV Annual Report
Diversity of Directors.
Capital Adequacy The ratio of total Eligible Regulatory Capital
CAR Annual Report
Ratio to Total Risk-Weighted Assets.
Loan to Deposit The ratio of Total Loans and Advances to
LDR Annual Report
Ratio Total Deposits.
ROA Return on Assets The ratio of Profit After Tax to Total Assets. Author
ATO Asset Turnover The ratio of Total Revenue to Total Assets. Author
SIZE Firm Size Natural Logarithm Value of Total Assets. Author
LEV Leverage The ratio of Total Debt to Total Assets. Author
Percentage Change in Gross Domestic
GDPG GDP Growth Rate Data Terminal*
Product.
Private Sector
PCG Percentage Change in Private Sector Credit. Data Terminal*
Credit Growth
INF Inflation Percentage of Inflation. Data Terminal*
*Data Terminal is the name for the API of BIZDATA Insights.

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4.0 Empirical Results:
4.1 Unit roots test
Given the relatively long time series nature of our observations, we have initially tested for the presence of any
unit roots. Assuming the null hypothesis of panels containing unit roots, we have used LLC (Levin-Lin-Chu) and
HT (Harris-Tzavalis) tests. Table II displays the output of the unit root test, which shows that all the variables are
stationary at a level other than SIZE in the case of HT. However, after first differencing, we can observe that the
variable is stationary.
Table: II Panel Unit roots
Levin-Lin-Chu Harris-Tzavalis
Variable Level P-Value Level P-Value Difference P-Value
NPL -10.74 0.000 0.25 0.000 -0.3713 0.000
BSIZE -11.0827 0.000 0.4232 0.001 -0.1876 0.000
BMEET -5.5009 0.000 0.1573 0.000 -0.5047 0.000
BIND -9.8580 0.000 0.3667 0.000 -0.3014 0.000
BGDIV -2.9838 0.001 0.2795 0.000 -0.2317 0.000
CAR -7.3275 0.000 0.4302 0.001 -0.2799 0.000
LDR -28.4722 0.000 -0.0221 0.000 -0.4038 0.000
ROA -26.7234 0.000 0.3928 0.000 -0.2443 0.000
ATO -3.8375 0.000 0.2323 0.000 -0.2093 0.000
SIZE -4.9998 0.000 0.5940 0.318 -1.0926 0.000
LEV -14.1205 0.000 -0.0999 0.000 -0.9894 0.000
GDPG -3.7786 0.000 0.3503 0.000 -0.1779 0.000
PCG -4.2796 0.000 0.4515 0.004 -0.4687 0.000
INF -3.602 0.000 0.0423 0.000 -0.3282 0.000
Furthermore, we have also tested for the presence of any first-order autocorrelation and heteroskedasticity.
Our findings imply that our dataset suffers from both first-order autocorrelation and heteroskedasticity.
Correspondingly, we have used the robust standard errors clustered by the firm, which is consistent with
heteroskedasticity and autocorrelation (Hoechle, 2007).

4.2 Descriptive statistics

Table III summarises the datasets using various statistical measures. The NPL ratio is observed to be spread with
a standard deviation of (3.943) while the mean is (5.554). Accordingly, it can be pointed out that the situation
of non-performing loans within the industry varies significantly from bank to bank. Corporate governance
variables are also distributed widely from the mean with different scores. BSIZE has a minimum value of (6) and
a maximum value of (21), while the mean and standard deviations are (14.013) and (3.972). Consequently, we
find that a large number of board members are well distributed around banks on average. We have measured
all of our variables using percentage form for consistency within the dataset. Furthermore, we have deployed
other measures of corporate governance, which also seem to be well dispersed with diverse practices within the
industry. Firm-specific characteristics are also measured using various ratios. CAR is calculated using the directives
provided by the central bank of Bangladesh. We have observed that LDR has a mean and standard deviation
values of (83.54) and (9.399). In summary, the loan-to-deposit ratio, or alternatively loan-to-investment ratio, is
quite high. GDPG has a mean and standard deviation value of (6.809) and (1.04), indicating that the growth rate
of GDP follows quite similar patterns over the years for Bangladesh, where the maximum value is (8.15), which
was observed during the year 2019.

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4.3 Univariate correlation analysis:
Table IV displays the output derived from the spearman correlation analysis. BSIZE is negatively correlated with
NPL at a 1 per cent level of significance which we have confirmed with further investigations. BMEET is positively
and significantly correlated with a value of (0.156). BIND and BGDIV are inversely correlated with NPL. In terms
of firm-specific characteristics, all the variables are negatively and significantly correlated with NPL except SIZE,
which is positively correlated with a value of (0.222). We have observed no significant relationship in terms of
macroeconomic variables with the NPL ratio. We have observed a minimum and maximum value of correlation
to be (0.441) and (-0.677), suggesting that our dataset is not disturbed by the presence of multicollinearity.

4.4 Multicollinearity test:

We have additionally used the VIF (Variance Inflation Factor) to specifically test our assumption of multicollinearity.
From table V we have found that our dataset is well within the cutoff value of 5 with a mean VIF value of (1.709).
Hence, we can conclude the nonexistence of the multicollinearity problem in our dataset.

Table: III Descriptive Statistics

Variable NPL BSIZE BMEET BIND BGDIV CAR LDR ROA ATO SIZE LEV GDPG PCG INF
Obs. 224 224 224 224 224 224 224 224 224 224 224 224 224 224
Mean 5.554 14.013 19.054 18.862 11.019 13.162 83.54 0.788 6.485 26.345 91.629 6.809 23.22 5.714
Std. Dev. 3.943 3.972 7.464 9.101 10.738 2.098 9.399 0.391 1.727 0.592 8.564 1.04 0.574 0.354
Min 0 6 0 0 0 5.56 8.11 -0.362 0.48 24.314 8.813 5.24 22.07 5.21
Max 33.07 21 53 70 42.857 21.19 109.96 2.082 23.286 29.15 97.459 8.15 24.02 6.41

Table: IV Univariate Correlation Analysis

Variables NPL BSIZE BMEET BIND BGDIV CAR LDR ROA ATO SIZE LEV GDPG PCG INF

NPL 1.000

BSIZE -0.247*** 1.000

BMEET 0.156** -0.055 1.000

BIND -0.036 -0.435*** 0.056 1.000

BGDIV -0.141** -0.125* -0.044 0.238*** 1.000

CAR -0.455*** 0.227*** -0.105 0.050 0.153** 1.000

LDR -0.188*** 0.002 -0.093 -0.096 -0.013 -0.067 1.000

ROA -0.442*** 0.028 -0.032 -0.041 0.008 0.355*** 0.079 1.000

ATO -0.154** 0.052 -0.085 -0.170** 0.044 -0.087 0.219*** 0.221*** 1.000

SIZE 0.222*** -0.129* 0.134** 0.441*** 0.072 -0.096 -0.037 -0.513*** -0.398*** 1.000

LEV 0.103 -0.004 0.031 -0.133** -0.044 -0.215*** 0.061 -0.086 0.198*** -0.110* 1.000

GDPG 0.076 -0.021 0.077 -0.054 -0.023 -0.113* 0.100 0.098 0.228*** -0.182*** 0.126* 1.000

PCG 0.030 -0.029 -0.094 0.046 0.055 0.216*** 0.036 -0.265*** -0.315*** 0.405*** 0.007 -0.347*** 1.000

INF -0.062 0.022 0.003 -0.023 -0.033 -0.097 -0.113* 0.167** 0.239*** -0.259*** -0.069 -0.109* -0.677*** 1.000

*** p<0.01, ** p<0.05, * p<0.1

Table: V Variance inflation factor

VIF 1/VIF
PCG 3.358 .298
INF 2.559 .391
SIZE 2.311 .433
BIND 1.801 .555
ROA 1.74 .575
CAR 1.587 .63
GDPG 1.58 .633

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 ATO 1.414 .707
BSIZE 1.409 .71
LEV 1.143 .875
LDR 1.122 .892
BGDIV 1.107 .903
BMEET 1.082 .924
Mean VIF 1.709 .

4.5 Regression results:

Table VI presents the findings of the panel data regression analysis using the RE (Random-Effect) estimator for all
the models. Furthermore, we have used robust standard errors within our models to weed out the problem of
heteroskedasticity and autocorrelation that may bias our output. We have categorised our variables under three
umbrellas which are Corporate Governance Variables, Bank Specific Variables and Marco-economic Variables.
We have used decomposed measures of corporate governance, which are specific attributes of corporate
governance variables. We have found that only with the presence of corporate governance variables only BSIZE
is significantly associated with the NPL ratio in the model (1). We find that larger boards can reduce the possibility
of non-performing loans due to the increased number of presences of expertise and skills on the board, which
is consistent with the findings of Lipton and Lorsch (1992). However, other measures of corporate governance
are not found to be significant, but their directions may be interpreted carefully. For brevity, we move further
to explain the other models. Bank-specific attributes show significant relationships in most of the cases with the
NPL ratio in the model (2). We have found that CAR, ROA and ATO can significantly reduce the possibility of
non-performing loans at a 1 per cent level of significance. Finally, in the model (3), we have run all the variables
from model (1) and model (2) along with macro-economic determinants as a control to grasp the whole scenario
at a time. We have found that all previous findings remain significant with the same level of significance. Most
importantly, macroeconomic determinants are all found to be significantly and negatively affecting the NPL ratio.
For example, GDPG, which measures the GDP growth rate, is negatively correlated at a 1 per cent level of
significance, indicating that economic growth can significantly alleviate the possibility of non-performing loans.
In summary, we can evidence that larger boards, proper measures of capital adequacy ratio, higher return on
assets, efficient turnover of assets and progressive macro-economic conditions can reduce the issue of the non-
performing loan in Bangladesh.
Table: VI Regression Results (RE)

(1) (2) (3)

NPL NPL NPL
Corporate Governance Variables
BSIZE -.305* -.25*
(.171) (.14)
BMEET .057 .068
(.061) (.057)
BIND -.043 -.047
(.052) (.043)
BGDIV -.004 -.002
(.022) (.02)
Bank Specific Attributes
CAR -.493*** -.411***
(.173) (.151)

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 LDR -.04 -.044
(.037) (.035)
ROA -2.936*** -3.079***
(.815) (.789)
ATO -.137*** -.132***
(.053) (.051)
SIZE -.892 -.847
(1.083) (.912)
LEV .011 .012
(.019) (.015)
Macro-economic Variables
GDPG -.579**
(.284)
PCG -2.695**
(1.08)
INF -5.889***
(1.789)
CONSTANT 8.987** 40.358 142.553***
(3.58) (32.628) (40.906)
Observations 224 224 224
R2 .13 .43 .46
Hausman specification
test
Chi2-Statistic 2.43 13.38 12.59
Chi2>P-value .99 .34 .70
Robust standard errors are in parentheses
*** p<.01, ** p<.05, * p<.1

4.6 Robustness analysis:
Following previous studies, we have applied GEE (Generalized Estimating Equations) method, which is superior
to RE (Liang and Zeger, 1986). Table VII displays the output of GEE regression which is in quite a harmony with
our previous findings in table VI indicating that our findings can be conferred with strong validity.
Table: VII Robustness analysis
(1) (2) (3)
NPL NPL NPL
Corporate Governance variables
BSIZE -.305* -.25*
(.166) (.134)
BMEET .057 .068
(.06) (.055)
BIND -.044 -.048
(.051) (.041)
BGDIV -.005 -.003
(.021) (.019)
Bank Specific Attributes

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 CAR -.49*** -.412***
(.168) (.146)
LDR -.039 -.045
(.035) (.033)
ROA -2.937*** -3.078***
(.791) (.758)
ATO -.135*** -.132***
(.051) (.049)
SIZE -.938 -.795
(1.074) (.866)
LEV .01 .013
(.018) (.014)
Macro-economic Variables
GDPG -.577**
(.275)
PCG -2.707***
(1.044)
INF -5.877***
(1.723)
CONSTANT 8.999*** 41.474 141.458***
(3.478) (32.333) (39.041)
Year Dummies? YES YES YES
Observations 224 224 224
Robust standard errors are in parentheses
*** p<.01, ** p<.05, * p<.1

5.0 Conclusion:
The global financial crisis, pandemic outbreak and war in recent times raised critical turmoil in the financial
ecosystem. Financial institutions are the largest capital provider in Bangladesh. The development of the capital
market depends largely on the growth of the banking industry. Contemporary scandals in the banking industry
regarding money laundering, bad loans and fund embezzlement have been long ignored. This study attempted to
assess the financial reality of the banks in terms of their capacity to manage their funds. Non-performing loans
weaken individual banks in the short run, but the long-run aftermath of such aggregated industry worsening
conditions might lead to recession. Government officials are already being instructed by the prime minister’s
office to tackle any possible financial recession in the year 2023 (Roy, 2022). Drawing reference to the previous
literature, we have tried to assess the overall health of the country’s banking system to provide for measures that
may reduce the NPL, which will, in turn, reduce the chance of any possible turmoil in the economy for the better.
Our findings suggest that larger boards are effective in reducing the chance of NPL. In addition, a higher capital
adequacy ratio can also significantly reduce the possibility of any further rise in NPL. Return on assets ratio,
asset turnover ratio, GDP growth rate, private sector credit growth and Inflation all are negatively correlated
with NPL with significance. We conclude that the more credit is infused into the economy, the more stable the
development of the listed bank’s revenue will be in the coming days. We also have reasons to believe that our
study is solely based on secondary data, which may be further clarified through the use of real-time primary data
based on the opinion of economists, policymakers and academicians. Future research should focus on the critical
areas of corporate governance that can be based on other metrics of internal monitoring.

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Notes:
1. Bangladesh Bank Website. Banks & FIs.
https://www.bb.org.bd/en/index.php/financialactivity/bankfi