Impact of non-performing loan on the performance of commercial bank of Nepal (with reference to RBB, NBL, NABIL and NIBL)
Date
2024
Authors
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Publisher
Shanker Dev Campus
Abstract
The influence of non-performing loans (NPLs) on the performance of commercial
banks is not merely an academic concern but also holds practical significance for policy
development, program design, and resource allocation. If the study demonstrates
adverse financial outcomes stemming from non-performing loans, its objective is to
evaluate the financial repercussions of such loans in both private and public commercial
banks in Nepal. Data for the study were sourced from the published financial statements
available on the respective websites of the sampled banks. The research design adhered
to a descriptive and causal research approach, employing descriptive statistics,
correlation analysis, and regression analysis. The findings suggest that the performance
of commercial banks has improved in the management of non-performing loans
(NPLs). A higher prevalence of non-performing loans is indicative of poor financial
health and the potential for an economic crisis. Conversely, a lower incidence of nonperforming
loans signifies better financial health for the economy.
Non-performing loans not only impact current profits but also exert influence on future
profits, potentially resulting in missed long-term beneficial opportunities. The
profitability of commercial banks is diminished due to provisions for write-offs related
to non-performing loans. NPLs have substantial effects on liquidity, causing a shortage
of funds and influencing the overall image of the bank. Moreover, the research reveals
that non-performing loans have a negative impact on various aspects, including
profitability, liquidity, the sanction and disbursement of loans, and the overall
performance of commercial banks. This underscores the importance of proactive
measures in addressing non-performing loans to ensure the sustained financial health
and performance of commercial banks