Impact of non-performing loan on the performance of commercial bank of Nepal (with reference to RBB, NBL, NABIL and NIBL)

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