Causality Assessment of Bankers’ Perceptions and Bank Specific Indicators on the Non-Performing Loans: An Empirical Analysis of the Commercial Banks of Pakistan

Objective: Non-performing loans have become a chronic problem in the banking industry of Pakistan over the last few decades. In this aspect, the study assessed the causal impact of Banks’ specific factors and bankers’ perceptions on non-performing loans.Methodology: The study is based on the data collected from 170 bankers of ten Commercial Banks of Pakistan. From bankers’ perspective, the study reported that the manager’s capability, the society’s orientation, interest waiver, and lenient credit terms have a negative impact on non-performing loans.Findings: In the light of finding the study suggests that the banks need to strengthen their internal control system and accountability arrangement for selecting genuine borrowers. Besides, the banks need to address moral hazard i.e. the borrowed funds are being used for the intended purpose.Implications: The study concludes that the banks may formulate an effective loan policy and revamp procedures within different phases of the “loan cycle”.