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Determinants of Non-Performing Loans in Licensed Commercial Banks: Evidence from Sri Lanka

Author

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  • Ekanayake E.M.N.N
  • Azeez A.A

Abstract

This study investigates the determinant factors of ex-post credit risk considering non-performing loans (NPLs) as proxy variable in Sri Lanka’s commercial banking sector and is carried out with a sample of nine licensed commercial banks for the period from 1999 to 2012. The study finds that the level of NPLs can be attributed to both macroeconomic conditions and banks’ specific factors. It reveals that, NPLs tends to increase with deteriorating bank’s efficiency. There is also a positive correlation between loan to asset ratio and NPLs. Meanwhile, banks with high level of credit growth associated with a reduced level of non- performing loans. Larger banks incur lesser loan defaults compared to smaller banks. With regard to macro-economic variables, NPLs vary negatively with the growth rate of GDP and Inflation and positively with the prime lending rate.

Suggested Citation

  • Ekanayake E.M.N.N & Azeez A.A, 2015. "Determinants of Non-Performing Loans in Licensed Commercial Banks: Evidence from Sri Lanka," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(6), pages 868-882.
    • Handle: RePEc:asi:aeafrj:v:5:y:2015:i:6:p:868-882:id:1409
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    Cited by:

    1. Abdoulganiour Almame Tinta & Erdjouman Jean Sanou, 2021. "Les Déterminants des Prêts Non Performants du Système Bancaire de l'UMOA," African Development Review, African Development Bank, vol. 33(2), pages 276-287, June.
    2. Maria Karadima & Helen Louri, 2021. "Determinants of Non-Performing Loans in Greece: the intricate role of fiscal expansion," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 160, Hellenic Observatory, LSE.
    3. Saom Shawleen Anita & Nishat Tasnova & Nousheen Nawar, 2022. "Are non-performing loans sensitive to macroeconomic determinants? an empirical evidence from banking sector of SAARC countries," Future Business Journal, Springer, vol. 8(1), pages 1-16, December.
    4. Khalaf, Tasneem & Masih, Mansur, 2018. "Is the relationship between non-performing loans of banks and economic growth asymmetric ? Malaysia’s evidence based on linear and nonlinear ARDL approaches," MPRA Paper 103714, University Library of Munich, Germany.
    5. Laxmi Koju & Ram Koju & Shouyang Wang, 2018. "Does Banking Management Affect Credit Risk? Evidence from the Indian Banking System," IJFS, MDPI, vol. 6(3), pages 1-11, July.
    6. Nitin Kumar & Arvind Shrivastava & D. P. Singh & Purnendu Kumar, 2018. "Determinants of Financial Stress of Indian Banks," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 19(2), pages 210-228, September.
    7. Atoi, Ngozi Victor, 2018. "Non-performing Loan and its Effects on Banking Stability: Evidence from National and International Licensed Banks in Nigeria," MPRA Paper 99709, University Library of Munich, Germany.

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