Does excess bank liquidity impact non-performing loan? a study on Bangladeshi economy

Abstract

This study endeavored to find out the impact of excess bank liquidity on non-performing loan (NPL) by using both technical and empirical analysis. The paper found that explanatory variable (excess bank liquidity) has moderate influence on dependent variable (NPL), suggesting some other hypothetical and psychological aspects such as intention to fraud, immoral lending, lack of loan monitoring, capital injection and nepotism etc. which may affect the current economic and banking system in Bangladesh. The study conducts simple linear regression analysis where the beta coefficient of excess bank liquidity is -0.435 clearly indicates, the inverse movement of both the variables which supports the real banking system. Model equation supports an economical relation between excess bank liquidity and non-performing loan (NPL) because loan recovery is the meaning of reducing non-performing loan (NPL) amount and boosts up the bank liquidity of any bank again.