Reasons for Non-performing Loans (NPLs) and Its Effects on the Banking Industry in Bangladesh

Abstract

The banking industry in Bangladesh is suffering much for non-performing loans (NPLs) that harm not only the banking industry but also the national economy. Every financial year a lot of loans can’t be collected in the banking industry in Bangladesh for some reasons. The goal of the study is to find out the reasons for causing NPLs and analyze the NPLs’ effects on thebanking industry in Bangladesh mainly based on primary data. A questionnaire consisting 20 questions was administered to 54 bank officers who are working in the loan sanction of 32 banks. Findings suggest that NPLs are one of the biggest problems for banking business, settlement process of non-performing loans (NPLs) is very complex and long-lasting to the courts, alower amount of revenue is generated for NPLs, there is a wasting of capital for increasing NPLs, in the settlement process of NPLs, there has an impact of corruption as well as poor enforcement of laws that usually create an option to be a willful defaulter, the increase of NPLs is an alarming indication for the banking industry to face a serious crisis,andpoor risk management of banks causes NPLs. Banks should reduce over competitions among them to provide loans to borrowers and should act as ahelpful hand to each other.