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Non-performing Loans of Agrani Bank Ltd.

Qualitative and Panel Data Analysis
From 2010 to 2015
What is NPL?

A non-performing loan is:

Sum of borrowed money
Which debtor has not made scheduled payments
For at least 90 days.
It is either in default or close to being in default
Objectives of the report

General Objective
To fulfil MBA requirement's
To highlight non-performing loans
Specific Objective
To identify the factors of NPLs
To explain current status of NPLs of ABL
To know about NPLs management of ABL
Methodology
Primary data sources
By personal interview
From practical experience
By relevant file study
Secondary data sources
Annual reports and Websites
Relevant books and periodicals
Different reports on NPL
Loan review policy and Credit policy guidelines of ABL
Limitations
Data analysis and the Report
Time constraint
Geographical disadvantages
Unwillingness of employees
Insufficiency of information
Unwillingness of customers in sharing information
Restricted information about classified loans
Less clarification of figures in financial statements
NPLs to Total Loans Ratio
30

25 23.9 24.27
22.2
19.8
20
Percentage

15.7
15
11.3
10
7.3
5.7 6.7
4.6
3.5 4.5 5.5 5
5 3.2 3 2.9 3

0
2010 2011 2012 2013 2014 2015
SCB 15.7 11.3 23.9 19.8 22.2 24.27
PCB 3.2 2.9 4.6 4.5 5 5.7
FCB 3 3 3.5 5.5 7.3 6.7
NPLs of SCBs as % of Total NPL
70
64.3%
60 60.7% 60.8%
53.9% 55.6%
51.6% 53.1%
50
PERCENTAGE

40

30

20

10

0
2009 2010 2011 2012 2013 2014 2015
YEARS
Amount of NPL of ABL

Time 2015 2014 2013 2012 2011 2010

Substandard
374.9 278.5 380.1 711.9 209.5 231.4
(mn)

Doubtful (mn) 175.9 406.5 471.1 918.8 238.1 133.1

Bad & Loss (mn) 4089.5 3281.3 2728.7 3749.4 1701.3 1737.6

Total NPL (mn) 4640.3 3966.3 3180.9 5380.1 2148.9 2102.1

NPL in % of Total Loan of ABL
30.00%

25.00% 25.29%

20.00%
19.08%
17.64%
16.96%
15.00%
12.88%
11.07%
10.00%

5.00%

0.00%
2010 2011 2012 2013 2014 2015
Theoretical causes of NPL

Non-attractive Industry
Delayed Assessment of Loan Proposal
Delayed Disbursement of Fund
Lack of Proper Monitoring
Lack of taking Proper Action
Poor Management capability
Poor Financial Performance
Strong Competition among the borrowers
Analysis and Interpretation
Dependent variable:
Total Non-performing Loans

Independent variables:
Bank Specific Variables- Macro-Economic Variables-
Net Interest Income Gross Domestic Product
Bank Size Unemployment rate
Total Loans and Advances. Inflation rate
Cost Efficiency Ratio
Return on Assets (ROA)
Analysis and Interpretation (cont.)

Simple OLS regression

Net interest income Significant
Bank size Significant
Total loan Insignificant
Cost efficiency ratio Insignificant
ROA Insignificant
GDP Insignificant
Unemployment rate Significant
Inflation rate Insignificant
Findings (simple OLS regression)

After running simple OLS, I got Prob > F = 0.0000, which is less
than 5%.
The whole model is significant at 5% level of significance. So, the
independent variables has the impact on NPL of the banks.
Net interest income, bank size, and unemployment rate are
significantly related to the total NPL.
Analysis and Interpretation (cont.)
Robust regression
Net interest income Significant
Bank size Significant
Total loan Insignificant
Cost efficiency ratio Insignificant
ROA Insignificant
GDP Insignificant
Unemployment rate Significant
Inflation rate Significant
Findings (Robust OLS regression)

Robust run minimizes the standard errors.

The whole model is significant at 5% level of significance.
Net interest income, bank size, unemployment rate and inflation rate
are significantly related to the total NPL.
Analysis and Interpretation (cont.)

Panel or Time-series Data Analysis

Panel variable: Bank
Time variable: Time, 2010 2015

I made 10 groups by 10 banks each has 6 year time span and focused
on two type of techniques, they are:
Fixed effects
Random effects
Analysis and Interpretation (cont.)

Fixed Effect
Net interest income Significant
Bank size Insignificant
Total loan Significant
Cost efficiency ratio Insignificant
ROA Insignificant
GDP Insignificant
Unemployment rate Significant
Inflation rate Significant
Findings (Fixed effect model)

86.20% of the variance is due to difference across panel.

Banks have their strong own characteristics which affects NPL.
Impacts of independent variables vary from bank to bank
Analysis and Interpretation (cont.)
Random effect

Net interest income Significant

Bank size Significant
Total loan Insignificant
Cost efficiency ratio Insignificant
ROA Insignificant
GDP Insignificant
Unemployment rate Significant
Inflation rate Significant
Analysis and Interpretation (cont.)

Hausman test
It resulted as:
Probability 6.58% which is closed to 5% significance level, and
Variance of the model is 86.20%.

Fixed effect model shows that net interest income, total loan, unemployment
rate and inflation are significantly related to the total NPL.
Impacts of independent variables vary from bank to bank.