An Appraisal of Recent Developments in Non-Performing Loans Affecting the Profitability of Commercial Bank in Bhutan

Abstract

This chapter purports to discover the causes of non-performing loans (NPLs) and its impact on the profitability of one of the commercial banks in Bhutan that is Bhutan National Bank Limited (BNBL). The causes and impact were considered from two distinct variables namely bank-specific (BS) and macroeconomic variables (MV); whereas PAT, interest income, and ROE were considered as proxies to judge the profitability of the bank covering ten years (2010-2019) time series data. The selected economic indicators appeared to be non-significant in determining the levels of NPL of BNBL. However, bank specific factors such as capital adequacy ratio (CAR) are positively affecting the NPL of the bank. Similarly, NPL (DOUB and LOSS) of the bank poses a negative impact on its profitability assessed in terms of return on equity (ROE). Further, when bank maintained higher CAR to address crisis in future, it tends to involve in lending loans easily with the assumption that higher CAR would safeguard the bank from going bankrupt or crises.