Impact of Non-Performing Loans on the Growth of the Banking Sector in Bangladesh

The banking system of a country is a predictor of its economic prosperity. However, the financial sector has experienced contradictory reactions. The rise of non-performing loans is a notable feature of the banking industry's financial crisis. According to Bangladesh Bank, state-owned banks are prone to substantial collapses, which have a knock-on effect on the entire commercial banking sector. The aim of the study is to determine the impact of non-performing loans on the growth of the banking system in Bangladesh. The paper is mostly an investigative desk study that prioritizes secondary data. Nonetheless, primary data was used, such as in-person interviews with bank personnel and staff, as well as casual conversations with clients. Secondary sources for this article include Bangladesh Bank bulletins, current newspapers and periodicals, some published and unpublished research reports, various websites, and a large number of peer-reviewed publications. The paper incorporates multiple regression analysis to assess the impact of non-performing loans on banking sector growth from 2012 to 2021. The findings revealed a highly significant inverse correlation among NPL, CRAR, and ROE, as well as a significant but negative relationship among NPL, ROA, NIM, and SLR. However, the alternative hypothesis is accepted, whereas the null hypothesis is rejected. Therefore, NPLs have a severe effect on banking advancement since they worsen banks' liquidity issues, lower profitability, trigger capital constraints, and even jeopardize the financial system’s stability and viability.