Determinants of Non-Performing Loans of Banks: Empirical Evidence from Private Sector Commercial Banks of Pakistan

Abstract

Banking sector plays a significant role in the economic development of the country and the non-performing loans has remained an intractable challenge which is denounced everywhere as the scourge of the present times. The study uses the, Asset Quality, Return on Assets, Deposit toTotal Asset, Cash to Total Asset, Size, Return on Equity, Capital Adequacy Ratio and Net interest margin as bank specific factors. The panel data since 2007 to 2019 has been collected from the annual reports of banks and State Bank of Pakistan database.Descriptive statistics, correlation analysis, fixed effect panel, least square regression and error correction mechanics test were applied to analyze the data.It was also concluded thatAsset Quality, Deposit to Total Assets, Cash to Total Assets, Return on Equity, Capital Adequacy Ratio and Net Interest Margin havenegative and significant effect on non-performing loans while the Size has insignificant and positive correlation with the non-performing loans. This study is therefore a narrative in pursuit of a normative vision for NPL free society.