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
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
ANALYSIS Part 2
Tk 11,660 crore had been
provided to state banks
between 2012 and 2017,

Bangladesh is the 12th ranked

nation in terms of non-
performing loan ratio (NPRL)
in the word having a ratio of
10.78%

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

 ANALYSIS Part 2
It is not only the state-owned banks that are defaulting, but again as per central bank data, 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.

Yet, when Boards of banks, especially state-owned institutions, have onboard individuals who are
either politically affiliated or are backed by the “powers that be,” there is little that the central bank
can do.

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
 RECOMMENDATIONS

banks should not make loan without conducting proper credit analysis

Additional collateral is required when the value of the previous has

decreased

According to loan policy, banks have specific limits for specific type of
loan, loan officer should not cross that limit;

Loan supervision and review should be conducted in regular basis

 RECOMMENDATIONS
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.
 RECOMMENDATIONS

Bank's concerned credit specialist must consider all reasonable alternatives

for cleaning up the troubled loan, including making a new, temporary
agreement if loan problems appear to be short term in nature or finding a
way to help/ cooption of strategic partner the customer strengthen cash
flow or to inject new capital in to the business. Other possibilities include
finding additional collateral, securing guarantees/undertaking/ to initiate
the case of foreclosure.
THANK YOU