In the name of Allah, the

Most Beneficent, the Most

Merciful.

There is no shame in
not knowing; the shame
lies in not finding out.
 DO NON PERFORMING LOAN
AFFECTED THE PERFORMANCE OF
BANKS EVIDENCE FROM KSE LISTED
BANKS
Arfan Ali
MBA (Banking and Finance)

Supervisor:
Mr. Muhammad Sajid
 Outline
Introduction
Background of The Study
Objectives of the Study
Literature Review
Data and Methodology
Data
Statistical Methodology
Correlation Coefficient
Regression Analysis
Results
Conclusion
 Introduction
Background of The Study

banks are financial institution and financial

intermediary which accept deposits and perform
lending activities.

Banks has great importance of well-functioning

financial services in all the world.

Nonperforming loans are those loan in which

principal and interest are more than 90 days.
 Objectives of The Study
The primary objective of the study is to study the
impact of nonperforming loans on the performance
of banks

The impact of NPL on the efficiency of banks in the

last five years

The impact of NPL provision on the profit and

performance of bank

Factors that become the reason of bad loan portfolio

Afshin
Arfan Mufti Sajid
Ali
Muhammad December
January 18,
March10, 2010
28,2014
 Literature Review
Zaini, Chan and Hassan (2008)
analyzed in the study that the relationship between bank
performance and non-performing loans.The result showed that
the lower cost efficiency enhances the non-performing load,
economic stability and growth of economies also affected by
Nonperforming loan. The management might be affected in
maintaining the loan portfolios.
Allen and Qian (2007)
investigated the role of Chinas system to support economic and
told the future development in the country. In short time it is
most difficult for large banks to decrease the non-performing
loan. Second the allocation of resources in the economy was
limited and not had any effect. In the long time the Chinas
financial market was important..

Afshin Mufti Sajid

Muhammad
Arfan Ali December
March10,
January 18,
28,2014
2010
 Literature Review (Cont.)
Lu, Thangavelu and Qing (2005)
examined the lending activities of different banks and
nonperforming loans. In this article took a panel data of listing
companies in the banking sector of China.

Berger and younger (1997)

addressed a relationship between loan problem and the
performance of banks. The model used Granger-causality
techniques and hypotheses which are used qualities of loan
cost efficiency and capital of bank

Afshin
Arfan Mufti Sajid
Ali
Muhammad December
January 18,
March10, 2010
28,2014
 DATA AND METHODLOGY

Population
The population is all the banks in Pakistan

Sample

Sample size all the banks listed in KSE. 22 banks take as

a sample listed in KSE

Statistical Techniques

Descriptive statistics
Afshin Mufti Sajid
Muhammad
Arfan Ali December 18,
March10,
January 2010
28,2014
 Results
Summary Statistics of Variables

ROE ROA EPS NPLWRI NPLGA PANPIGA NPLSE NPLPTNPL

Mean -0.16 0.113 3.830 39.517 12.861 5.1623 251.939 248.2442

Median 0.08 0.77 1.43 31.295 10.36 2.665 55.575 75.645

Maximum 0.37 3.72 24.47 474.99 51.56 27.97 14256 18971.8

Minimum -14.74 -7.08 -19.02 0 0 0 -1088.3 6.14

Std. Dev. 1.48 2.265 7.5838 49.29415 10.24131 6.173671 1477.9 1801.792
Prob 0 0 0.00001 0 0 0.000001 0 0

Sum -18.2 12.47 421.35 4346.96 1414.74 567.86 27713.3 27306.86

Obs 110 110 110 110 110 110 110 110

*indicates significance at 5% level.

Afshin
Arfan Mufti Sajid
Ali
Muhammad January
March10,
December 28,2014
18, 2010
 Correlation Coefficient Result

NPLWRI NPLGA PANPIGA NPLSE NPLPTNPL

NPLWRI 1

NPLGA -0.174479 1

PANPIGA -0.288724 0.560763 1

NPLSE -0.046438 0.065844 0.02046 1

NPLPTNP
L -0.006811 -0.125742 -0.08331 -0.01684 1

Afshin
Arfan Mufti Sajid
Ali
Muhammad December
January 18,
March10, 2010
28,2014
 Results of Regression
Return on Asset Return on Equity

Variables Coefficient T-Statistics Coefficient T-Statistics

C 0.39614 1.626276 1.719098 5.150699

NPLWRI 3.39E-05 0.013014 -0.00283 -0.7938

NPLGA -0.06665 -4.578731 -0.167751 -8.41065

PANPIGA 0.074356 3.012104 0.12971 3.83482

NPLSE -0.00035 -4.202455 -0.00012 -1.04803

NPLPTNPL -5.91E-06 -0.086173 9.70E-05 1.031525

R-squared 0.286659 0.428186

F-statistic 8.358547 15.57544

Observations 110 110

Afshin Mufti
Arfan Ali December 18,2014
January 10, 2010
 Conclusion
The result shows that the Non performing loan has significant
impact on the efficiency of banks.

On the other side when the number of non performing loan

decrease then the efficiency of banks increase.

NPLGA has negative effect on the ROA, ROE and EPS if bad
loans increase then return on assets, return on equity and
earnings per share decreases due to decrease these
dependent variables the profit of bank also decrease.

Provision against NPLs to gross advances has direct

significant impact on the performance of the banks.

Afshin Mufti
Arfan Ali December 18,2014
January 10, 2010
 THANK YOU

AfshinAli
Arfan Mufti December
January 10,
18,2014
2010