IMPACT OF NON-PERFORMING LOAN ON ISLAMIC BANKING FINANCE IN PAKISTAN

Abstract

The dataset provides information on Non-Performing Loans (NPLs) in five Islamic banks, along with several other variables related to their performance and macroeconomic factors. The results indicate that bank capitalization, loan-to-deposit ratio, and number of branches have significant associations with NPLS. An increase in bank capitalization is found to be correlated with higher NPLS levels, while a higher loan-to-deposit ratio and a greater number of branches are associated with increased NPLS. Variables such as bank diversification, credit growth, economic growth, inefficiency, lending rates, and reserve ratio do not show significant relationships with NPLS. The regression model explains approximately 51.98% of the variation in NPLS, suggesting that there may be other unaccounted factors influencing non-performing loan levels. Strategies focusing on improving bank capitalization, optimizing loan-to-deposit ratios, and effective branch management may contribute to reducing NPLS levels in the banking sector. Further research is recommended to explore additional factors that could impact NPLS and refine the understanding of non-performing loan dynamics.