Impact of Non-Performing Loan on Profitability of Commercial Banks in Nepal

Abstract

Non-performing loan is borrowed money from the bank which has not made the scheduled payments for a specified period is known as non-performing loan. The loan of bank which do not perform any role in getting profit to the organization, such loan are called Non-performing loan. Non-performing loan (NPLs) are one of the major concerns for banking sector in Nepal. The objectives of this are to analysis the impacts of non-performing loan on profitability of commercial banks in Nepal. In this research, an effort has been made to analyze the impact of NPL on profitability of Nepalese commercial banks. The study covered four commercial banks in Nepal over the period of past 5 fiscal year from 2014 to 2018. The study has used the descriptive design which was focused on determining the relationship between nonperforming loan and profitability of commercial banks in Nepal. The study is mainly based on the secondary data collected for the purpose of analysis in this research. The information, facts and figures provided by the banks used to analysis the research. For the purpose of the study convenience sampling under non-probability sampling method was used to analysis. The sample banks are Nabil Bank, Everest Bank Limited (EBL), Nepal Investment Bank Limited (NIBL), and Nepal State Bank of India (NSBI). The trend analysis of selected bank of NPM has fluctuated trends. As compare NABIL has good performance in NPM with highest 39.22% in 2017 and NSBI has low performance with highest 25.56% in 2016. The trend analysis of selected bank of ROA has fluctuated trends. As compare NABIL has adopt better performance with 2.89% highest in 2014 and NIBL has 2.25% highest in 2014 and EBL has 2.25% highest in 2014 and NSBI has 1.97% highest in 2018. Overall NSBI has low performance as compares to other banks. The trend analysis of selected bank of ROE has downward sloping trends. Increasing in NPL can significantly influence the profitability. That mean, if the NPL increases, real profitability decrease but total lending plays vital role to deviate the result. The trend of the non-performing loan in selected banks is going downward sloping which is significance. The trend of ROA and NPM in selected banks is fluctuation, due to the internal and external factors that affect the status of NPL in Banks.