Reasons and Effects of Non Performing Loans in the Banking Industry of Pakistan

Abstract

This article is supervised by Miss Kiran Azeem. This study shows that Non- performing loans (NPL) is an important problem for the whole banking industry and also a big hurdle in its development. According to our consideration there are many factors which are responsible for increasing NPL such as GDP, Credit appraisal, Interest rate, Improper lending disbursement to agriculture sector. This study investigates the causes & effects that occur due to NPL & how to overcome all these problems of NPL to maintain the credit stability. During this study, time series data were followed over the period of 2000 to 2016. The result shows no significant relation of GDP, Interest rate and improper lending disbursement to agriculture sector with NPL however there is a significant association of Credit appraisal with NPL. Therefore we recommend that banks should control their credit advancement policies. Also we would like to recommend that State bank of Pakistan (SBP) should give information about fraudulent to every bank so that they can’t take money to other banks for this act NPL has the chances to decrease.

Keywords: Non-performing loans, GDP, Interest rate, Credit appraisal, improper lending disbursement to agriculture sector.