Impact of corporate governance in restricting non-performing loans in commercial banks of Bangladesh

Abstract

Non-performing loans is one of the most severe problems that the banking sector is currently facing. The major causes of non-performing loans are lack of proper management, lack of effective corporate governance and monitoring of the banks, borrowers negligence in paying installments, lower GDP growth etc. NPL has a huge impact on the performance of the banks. The income and the profitability of the banks suffer due to increased non-performing loans in banks. The report analyzes the impact of corporate governance mechanisms in controlling the non-performing loans in banking sector of Bangladesh. The report has found that Non-performing loans has a positive relationship with insider ownership and government ownership. However, non-performing loans decrease with increase in foreign ownership. Non-performing loans also decreases with increase in CEO‟s salary and the number of audit members. The report has found that the board size and the board independence have no significant impact on the volume of non-performing loans in a bank. In order to control the default loans, the banks should use more constructive method to improve the credit operations such as background checking of the borrowers, checking feasibility of the project for which loan was taken and most importantly keeping track of the loan installments after the disbursement of the loans.