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Impact of Non-Performing Loans on Bank Profitability: A Study of Rupali Bank PLC, Bangladesh

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  • Sakila Zabin

    (Department of Finance and Banking, Faculty of Business Studies, Hajee Mohammad Danesh Science and Technology University, Dinajpur-5200, Bangladesh.)

  • Manik Hossain

    (Department of Finance and Banking, Faculty of Business Studies, Hajee Mohammad Danesh Science and Technology University, Dinajpur-5200, Bangladesh.)

  • Ayrin Sultana

    (Department of Finance and Banking, Faculty of Business Studies, Hajee Mohammad Danesh Science and Technology University, Dinajpur-5200, Bangladesh.)

Abstract

In this study, the profitability of Rupali Bank PLC, a state-owned commercial bank in Bangladesh, is examined in relation to non-performing loans (NPLs) during the years 2015–2022. The analysis uses secondary data sourced from the annual reports of Rupali Bank PLC. Linear regression analysis is employed to examine how NPLs impact key profitability indicators, specifically Return on Assets (ROA) and Return on Equity (ROE). The findings reveal a significant negative correlation between NPLs and profitability, with higher NPL ratios leading to a decline in both ROE and ROA. Specifically, NPLs account for 76.1% of the variation in ROE and 62.8% of the variation in ROA. The study confirms the hypotheses: H1 (NPLs have a significant negative relationship with ROE) and H2 (NPLs have a significant negative relationship with ROA), highlighting the detrimental effect of rising NPL levels on the bank’s profitability. These results suggest that an increase in NPLs severely hampers the bank’s ability to generate profit and affects its overall financial health. The study underscores the importance of effective NPL management for sustaining profitability and ensuring financial stability in the banking sector. The findings have critical implications for policymakers and bank management, suggesting that enhanced credit risk management practices and stronger lending protocols are essential to mitigate the adverse effects of rising NPLs.

Suggested Citation

  • Sakila Zabin & Manik Hossain & Ayrin Sultana, 2024. "Impact of Non-Performing Loans on Bank Profitability: A Study of Rupali Bank PLC, Bangladesh," International Journal of Science and Business, IJSAB International, vol. 42(1), pages 159-174.
    • Handle: RePEc:aif:journl:v:42:y:2024:i:1:p:159-174
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    References listed on IDEAS

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