Impact of non- performing loan on profitability in development banks

Abstract

The study is focused on analysis of Impact of Non- Performing Loan on Profitability in Development Banks. The objectives of the study were to analyze significance of nonperforming loan on risk and return on development banks in Nepal, examine impact of non-performing loan on particular development banks profitability, examine impact of non-performing loan on aggregate of development banks profitability and compare the impact of non-performing loan on particular and aggregate profitability of development bank. The study is completed under the descriptive and analytical research design taking the five development banks as the sample out of population total development bank 17 in Nepal, to complete study used both financial tools and statistical tools, like financial ratio, mean, standard deviation, correlation and regression line. The correlation among the return on assets with loan loss provision, non-performing loan, total loan, equity/capital and total assets is negative, with these variable increases the return on assets decreases. Similarly, return on equity also associated negatively with variables loan loss provision, non-performing loan, total loan, equity/capital and total assets. The regression analysis shows the return on assets and return on equity both significantly influences by the loan loss provision, non-performing loan, total loan, equity/capital and total assets at significant level 0.05. However, particular coefficient of variables, some are significant and some are insignificant at 0.05 level. Keywords: Return on assets, Return on equity, Loan Loss provision, Non-performing loan, Total loan, Capital/equity and total assets