Impact of Non-Performing Loans on Saudi Bank Profitability

Non-performing loans (NPLs) have become increasingly worrying to the Saudi banking sector. Sanctioned loans have a repayment schedule, including principal and interest amounts. Excessive defaults on loans leads to a liquidity crisis throughout the banking sector, and can even cause bank failure. As a result, banks have to cover non-performing loans and maintain reserves under the instructions of the Saudi Arabia Central Bank, which severely affects profitability. This study analyzes the comparative position of non-performing loans in the Saudi banking sector over the period 2009-2017 to determine causes and impacts on bank profitability, using data from annual reports. The study variables are profitability (ROA and ROE) as the dependent variable, and non-performing loans ratio (NPLR) as the independent variable. The data was analyzed by correlation, regression, and analysis of variance (ANOVA) using SPSS. The empirical results represent that NBLR has a negative influence on the dependent variable.