Research Notes Non-Performing Loans: Determinants and Impact on Banking Industry


Non-Performing Loans (NPLs) gained attention of economists and researchers since the last three to four decades; the time when banking sector experienced the increasing trend in the NPL’s and started facing crises. The importance of the financial sector cannot be ignored or argued as economic growth in any country cannot take place without a sound financial sector. Factors of ex-post credit risk are a matter of considerable magnitude for supervisory establishments related to management of banks and financial permanence. Non-Performing Loans (NPLs) are the result of occurrence of ex-post In the literature NPLS are termed as major cause of bank failures which may eventually result in hurting the economy. Reinhart and Rogoff (2010) stated that NPLs can be marked as beginning of the banking crisis. A loan will be classified as non-performing if the borrower has ceased to pay the principal and interest, as stated in the loan repayment contract. Non-performing loans (NPLs) are such loans and advances on which markup or principal is over due by 90 days or more from the due date. In banking industry the issue of NPLs is quite significant, minimization of NPLs is indispensable for development of the banking industry and subsequently also for the economic development.

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