Firm-Level and Macroeconomic Drivers of Non-Performing Loans: Evidence from Bangladeshi State-Owned Banks

The study aims to analyze the firm-level and macroeconomic drivers of non-performing loans (NPLs) of the state-owned banks in Bangladesh. To meet the study objective, the 10 years’ of data—from 2013 until 2022, of five state-owned banks have been anlyzed using the loan-to-deposit ratio (LDR), loan-to-asset ratio (LAR), capital-to-risk-weighted asset ratio (CRWAR), profitability, inflation, and GDP growth metrics to study how these factors determine their impact on NPLs. Through using the correlation coefficient and random-effect regression model, the results revealed that LAR and CRWAR affect NPLs negatively. However, profitability and economic growth have significant negative effects, while the LDR and inflation play only a minor role in determining the state-owned banks’ NPL level. The research demonstrates that strong credit monitoring methods combined with sound regulation and a steady economy are needed to help solve this NPLs issue. The study suggests useful policies to mitigate bank system risks while enhancing the performance of state-owned banks to support Bangladesh's future economic growth.