Abstract:
The banking sector plays a vital role in Bangladesh’s economic development by mobilizing
savings and financially productive investments. However, the persistent rise in Non- Non
Performing Loans (NPLs) poses a serious threat to the stability, profitability, and efficiency of
commercial banks. Despite numerous policy interventions by the Bangladesh Bank, NPL ratios
in Bangladesh remain the highest in South Asia, indicating structural weakness in the banking
system. The main objective of the study is to empirically investigate the impact of both bank
specific and macroeconomic factors on the level of NPLs in 15 commercial banks listed in the
Bangladesh Bank over the 10 period 20214-2023. Key bank specific variables include Return
on Assets (ROA), Capital Adequacy Ratio (CAR), Loan to Deposit Ratio (LDR), Bank Size
and Cost to Income Ratio (CIR), while macroeconomic indicators encompass GDP growth
rate, Inflation Rate (IFR), and Interest rate Spread (IRS). The study uses secondary data
collected from annual reports, regulatory publications, and financial databases. A panel data
regression approach is employed, and based on the Hausman test, both Fixed Effects and
Random Effects Models are considered. After Several diagnostic tests, such as descriptive
statistics, normality test, multicollinearity test, heteroscedasticity test, and autocorrelation test,
are conducted to ensure model robustness. The findings reveal that ROA, CAR, and LDR have
a significant negative relationship with NPLs, implying that greater profitability, stronger
capitalization, and efficient loan utilization reduce credit risk. Conversely, bank size and CIR
exhibit a positive association with NPLs, suggesting that larger banks and those with higher
operational costs may face greater loan defaults. Among macroeconomic variables, GDP
growth and interest rate spread show a weak positive influence on NPLs, while inflation and
exchange rates appear insignificant. The study recommends enhancing bank profitability,
maintaining strong capital buffers, improving cost efficiency, and adopting counter-cyclical
lending practices. Regulatory authorities are urged to strengthen oversight, promote sound
governance, and tailor monetary policies to support credit risk mitigation. These insights are
crucial for developing resilient banking practices and ensuring long-term financial stability in
Bangladesh
