*Senior Lecturer, Dept of Financial Management, Faculty of Management Studies and Commerce, University of Jaffna, Sri Lanka. Email id: sayananakshi@yahoo.com
**Student, Department of Financial Management, Faculty of Management Studies and Commerce, University of Jaffna, Sri Lanka
During the last two decades, a significant increase of credit growth provided by financial institutions was recorded. More specifically, competition was increased to a large and medium degree within domestic markets. A big strand of literature found that, competition increased banks’ credit risk, i.e. affecting their loan portfolios in terms of bad loan screening procedures and relaxing borrowing criteria. One of the most common indicators that used to identify credit risk is the ratio of nonperforming loans (NPL). Study found that liquidity and profitability significantly correlated with non performing loans. Regression model showed that liquidity, profitability and bank size significantly impacts the non performing loans. The focus of this study was bank specific determinants of nonperforming loans, the other factors such as macroeconomic determinants are not considered. The study contributes to literature in Sri Lanka. It can help identify the causes of NPL ratio and thus lead analysts, policymakers, investors and financial institutions to a better understanding of Nonperforming loans.
Nonperforming loans, Liquidity, Profitability, bank size, Capital adequacy ratio, Loan growth, Liquid asset ratio, Return on equity
