COVID-19 Impact on NPLs in Corporate Sector - A study on Banking Industry of Pakistan

Abstract

This empirical study explores the impact of COVID-19 on NPLs (Non-performing loans) of corporate sector in banking industry of Pakistan. In this research, dependent variable is Non-performing loans and independent variables are Repayment capacity, ROA, Macroeconomic factors and Nature of collateral. The paper used random sampling technique to collect the primary data which based on quantitative study, structured questionnaire contains 15 questions from the participants which is bank employees (credit officers, marketing persons, branch managers and area managers) from 30 branches of 4 commercial banks operating in the city of Karachi, Pakistan which categorized by a) Public Sector b) Specialized banks c) Private sector bank the major collected the data from the last category is Private sector commercial banks it have highest number of branches of bank which is National Bank of Pakistan, Habib Bank Limited, Bank Al-Habib and Bank Islami Pakistan Limited operating in the Karachi. The questionnaire was filled by 260 respondents that all are employees in different banks. Supplementary data was collected through the different articles, publications, surveys, researches, reports of economist and analyst papers. More specifically, the SPSS model used to draw the results. Selective descriptive statistics, Pearson correlation and Multiple Regression model technique were used to elaborate the significance and relationship between the variables affecting NPLs. The variables are used in the study such as ROA, repayment capacity, nature of collaterals and macro-economic factors (economic downturn and high interest rates). These variables are directly influences to the NPLs, while macro-economic are moderate significant variables. The result have found that various background the NPLs and also suggest the loan sanctioning procedure for the financial institution. The findings of the study shows that high interest rate is significant relationship with the NPLs and the other variables is insignificant to the NPLs.The paper also indicates the techniques of risk management which is adopted by the banks to diverse the risk of chances of loan default or in rise the NPLs.