Determinants of Credit Risk focusing on Non-Performing Loan (NPL) of Janata Bank PLC

Abstract

This study investigates the key determinants influencing credit risk at Janata Bank PLC, with a specific focus on Non-Performing Loans (NPL) as the dependent variable. The research evaluates the impact of several macroeconomic and financial indicators, including Return on Assets (ROA), Return on Equity (ROE), Inflation (INF), Gross Domestic Product (GDP), and Interest Rate (INT), on the level of NPLs. Using empirical analysis, the findings reveal that all variable exhibit a statistically significant relationship with NPLs. Specifically, ROA and ROE demonstrate a negative association, indicating that higher profitability corresponds to a lower volume of non performing loans. Similarly, GDP growth is linked to a reduction in NPLs, suggesting that favorable economic conditions enhance borrowers' ability to repay. Conversely, the interest rate shows a positive relationship, implying that higher borrowing costs may increase the risk of default. The study provides critical insights for bank executives, regulators, and policymakers. For Janata Bank and similar institutions, maintaining strong financial fundamentals (as reflected in ROA and ROE), monitoring economic trends (such as GDP), and managing interest rate exposure are key to minimizing credit risk. The findings also reinforce the need for comprehensive credit risk assessment models that integrate both internal performance metrics and macroeconomic indicators. Overall, this research contributes to the growing body of literature on credit risk management in developing economies and underscores the importance of proactive, data driven decision-making in banking supervision and governance. These results underscore the importance of sound financial performance and macroeconomic stability in managing credit risk. The study provides valuable insights for bank management and policymakers aiming to strengthen credit practices and reduce the burden of non-performing loans within the banking sector.