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Bank Parikrama: A Journal of Banking & Finance

ISSN: 1019-7044

Volume XLVI, Nos. 3 & 4, September-December 2021

Published: April 2022

Pages:

Effects of Non-Performing Loans on Economic Growth and Profitability of Banks in Bangladesh

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Abstract

Obtaining a progressive and stable growth in economic development, an effective flow of investment and efficient savings strategy is the main concern in a country where the financial sector is influenced by the banks. As a developing economy, Bangladesh has been facing bad credit culture along with weak and fragile capital market which is mostly backed by mobilization of saving and sanctioning loan facilities to defaulters by the banks. The problem of Non-Performing Loans (NPLs) is a burning question in today’s banking sector, which is undermining the stability and profitability of banks. This research intended to search the relationship between NPL and factors of economy, such as rate of Gross Domestic Product (GDP) growth, Return on Asset (ROA), Return on Equity (ROE), interest rate, etc. Secondary data from different sources were used and analysis was done with data of the Bangladeshi State-Owned Banks over the time span of 2001 to 2017. The analysis was done based on the simple regression model to determine the intended relationships among the variables. From the research, it can be concluded that a negative relationship exists between NPL-GDP and NPL-ROA relationship, but a positive relationship exists between NPL and Interest Rate, whereas no specific relationship exits between NPL and ROE. As the NPL is affecting the economy, it is of paramount importance to get to the bottom of this problem and eliminate it.

Keywords: Non-Performing Loans ,  Bangladesh ,  Economic Growth ,  ROA and Profitability

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