Abstract:
This study examines the relationship betw
focus on the banking sector in Pakistan.
Design/Methodology/Approach
een non-performing loans and bank profitability with a
Using deductive research and causality research, the study analyzes data from 15 listed
commercial banks in Pakistan. Using empirical analysis and theoretical frameworks, the study
identifies the key factors influencing
in different market contexts.
non-performing loans and their impact on bank profitability
Findings
Findings show significant correlations between non-performing loans, capital adequacy ratio
(CAR), liquidity (LQDT), and return on capital (ROA). Specifically, higher NPL and liquidity
are linked with lower ROA, while an increase in CAR is linked with higher ROA. However,
gross domestic product (GDP) does not significantly affect ROA in the considered models. In
addition, a diagnostic test is done to ensure the reliability of regression analysis by demonstrating
the normal distribution of the data and finding the absence of heteroscedasticity and serial
correlation, both fixed and random effects models are used, with the Hausman specification test
favoring the fixed effects model.
Originality/Value
This research provides valuable information to policymakers, investors, and financial
improving the understanding of the challenges posed by non-performing loans. By
institutions,
examining the background factors and systemic effects of non-performing loans, the study
informs evidence-based policies and risk management practices aimed at ensuring financial
stability and promoting sustainable economic development.
