Sensitivity of Non-Performing Loan to Macroeconomic Variables: Empirical Evidence from Banking Industry of Bangladesh

Abstract

This paper attempts to examine the potential effect of macroeconomic variables on the downfall of loans The data used in this study range from 2005 to 2014 and cover 22 commercial banks operating in Bangladesh Failure of credit policy is measured with the rate of nonperforming loan NPL which indicates vulnerability of credit system in banking and financial industry Several researches have been conducted in many countries where mix pattern of relationships has been found In this research paper four macroeconomic variables named GDP growth rate inflation rate interest rate spread of banking sector and rate of unemployment are tested with NPL ratio in order to ascertain significant relationship for commercial banks of Bangladesh The result of econometric analysis revealed that NPL is negatively sensitive to inflation rate and interest rate spread and positively sensitive to GDP and unemployment rate