The Impacts of Non-Performing Loan on Profitability: An

Empirical Study
on the Banking Sector of
Dhaka Stock Exchange

GROUP ONE
Ulfat Murshed Tamanna 16221003
Tasmiah Binte Noor 16221005
Rifat Ibna Lokman 16221007
Tasnim Ansari 16221009
 NON PERFORMING
OVERVIEW: LOAN
M&B
NON PERFORMING LOAN

Loans that are 90 days or more past due and still accruing
interest

Loans which have been placed on non-accrual

Interest payments are not being made on scheduled

time.
OVERVIEW OF NON PERFORMING LOAN

Started during Expansion of Banking

(1972-1981) credit policy Infrastructure

Adopted Enact money

Prudential norms loan court act
Research NON PERFORMING
Methodology: LOAN
M&B
RESEARCH METHODOLOGY

30 Commercial Bank Listed in DSE

Collected 3 Years of Data of Commercial

Banks

Data has been tested with Regression Analysis

MEASUREMENT OF
VARIABLES
M&B
 MEASUREMENT OF
VARIABLES

DEPENDENT
  𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 − 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒
𝑁𝐼𝑀 =
Net Interest 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐸𝑎𝑟𝑛𝑖𝑛𝑔 𝐴𝑠𝑠𝑒𝑡𝑠
Margin
 MEASUREMENT OF
VARIABLES

INDEPENDENT
  𝑁𝑜𝑛 𝑃𝑒𝑟𝑓𝑜𝑟𝑚𝑖𝑛𝑔 𝐿𝑜𝑎𝑛𝑠
Non 𝑁𝑃𝐿𝑅=
Performing 𝑇𝑜𝑡𝑎𝑙 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝐿𝑜𝑎𝑛𝑠
Loan Ratio
 MEASUREMENT OF
VARIABLES

INDEPENDENT
  𝑇𝑖𝑒𝑟 1 𝐶𝑎𝑝𝑖𝑡𝑎𝑙+𝑇𝑖𝑒𝑟 2𝐶𝑎𝑝𝑖𝑡𝑎𝑙
𝐶𝐴𝑅=
Capital 𝑅𝑖𝑠𝑘 𝑊𝑒𝑖𝑔h𝑡𝑒𝑑 𝐴𝑠𝑠𝑒𝑡𝑠
Adequacy Ratio
 MEASUREMENT OF
VARIABLES

INDEPENDENT
  𝑇𝑜𝑡𝑎𝑙 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝐿𝑜𝑎𝑛𝑠
𝐿𝐷𝑅=
Loan Deposit 𝑇𝑜𝑡𝑎𝑙 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐷𝑒𝑝𝑜𝑠𝑖𝑡𝑠
Ratio
 NON PERFORMING
CAUSES: LOAN
M&B
 CAUSES OF NON PERFORMING LOAN

Lack of business Unwillingness Non-attractive

experience to pay Industry

1 2 3
 CAUSES OF NON PERFORMING LOAN

Poor Delayed
Strong
Management Disbursement
Competition
capability of Fund

4 5 6
CAUSES OF NON PERFORMING LOAN

Lack of Lack of
Proper taking Proper
Monitoring Action

7 8
 NON PERFORMING
PITFALLS: LOAN
M&B
 PITFALLS OF NON PERFORMING LOAN

Credit
Efficiency Negative
Crunch
problem relationship
situation
 Hypothesis of the study
Ho: there is no significant impact of Non-Performing Loan (NPL) on
Profitability (Net Interest Margin).

H1: There is significant impact of Non-Performing Loan (NPL) on

Profitability (Net Interest Margin)
REGRESSIONANALYSIS
M&B
 REGRESSION ANALYSIS
DEPENDENT

Net Interest
Margin

INDEPENDENT INDEPENDENT INDEPENDENT

Non
Capital Loan Deposit
Performing
Adequacy Ratio Ratio
Loan Ratio
REGRESSION
ANALYSIS
 REGRESSION
ANALYSIS
𝑅2 =13 .09 %
 

P- Value < 0.05

SIGNIFICANT SIGNIFICANT

P- Value > 0.05 INSIGNIFICANT

INSIGNIFICANT

NEGATIVE
POSITIVE
 REGRESSION ANALYSIS

𝒚 ̂ = 𝟒.𝟓𝟓𝟗𝟗𝟎 − 𝟎.𝟐𝟎𝟗𝟗𝟕𝒙𝟏 − 𝟎.𝟎𝟕𝟒𝟑𝟎𝒙𝟐 + 𝟎.𝟎𝟎𝟗𝟕𝟐𝒙𝟑

DEPENDENT INDEPENDENT INDEPENDENT INDEPENDENT

Non Capital Loan

Net Interest Performing Adequacy Deposit
Margin Loan Ratio Ratio Ratio
ANALYSIS: PART 2
M&B
 NPL% of total loans

30 26.5

25 20.4
20

15
NPL% of total loans
10 7
4.9
5

0
s s s s
ank n k
ank ank
b Ba B B
ate zed ig
n
ate
St l i re i v
ic a Fo Pr
e
Sp
ANALYSIS Part 2
Bangladesh is the 12th ranked
nation in terms of non-
performing loan ratio (NPRL)
in the world having a ratio of
10.78%

Tk 11,660 crore had been

provided to state banks
between 2012 and 2017,

State-owned bank’s NPLR

crossed above 27%
 ANALYSIS Part 2

Sonali Bank
BASIC Bank Janata Bank
3400 crore
6,538 crore 8,300 crore

2012 2015 2018

 Increased demand for loans and
Early bank services and increased
Expansion consumer spending

 Loans unpaid for at least 90

days, have more than 90 days'
worth of interest delayed

Economic
Recession Mid
Cycle Interest Income

Decrease in Net Income

Late
Banks borrow the money deposited by account holders
and loan it to their customers.

the bank is unable to recover the principal.

Unrecoverable income and a decrease in interest

collections translate into less cash flow

Banks tend to resort to tighter credit policies

Slow down economic growth

8
7.2 7.3
7 6.88
6.52
6.04 6.06
6

0
2012 2013 2014 2015 2016 2017
• 2 domestic commercial banks, 3 specialized development banks, 2 foreign
banks joined the ranks of NPL

• There has been no lack of directives coming out of the central bank on how banks
need to manage their respective portfolios to stem this alarming tide.

• Abul Maal Abdul Muhith said, “If the Bank’s average NPLR stands below 10%,
that bank assumed to be safe.”

• To attain MDG goals, NPLR was a major concern. If the rate doesn’t go down, the
result won’t be positive at all.
Recommendation
 Not make loan without conducting proper credit analysis

Additional collateral is required when the value of the previous has

decreased

Loan officer should not cross Specified limit;

Loan supervision and review should be conducted in regular basis

Before sanctioning loans, all the documents related to the loan should be
collected and preserved

Banks should not sacrifice the safety of the fund to get extreme profit from
risky investment.in many cases, dishonest borrowers utilize loan not in the
purpose stated in the agreement but in the purpose of consumption or in
other types of risky investment.
 Banks should evaluate the performance of the company on the basis of
periodic financial statements.

Bank's concerned credit specialist must consider all reasonable alternatives

for cleaning up the troubled loan,
THANK YOU