An investigation into the effect of non-performing loans on the profitability of commercial banks in Namibia
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Date
2023
Authors
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Journal ISSN
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Publisher
University of Namibia
Abstract
This study investigates the effect of non-performing loans on the profitability of major
commercial banks in Namibia for the period 2015 to 2020. In order to achieve this
objective, pooled annual data for six commercial banks obtained from the banks’
financial statements was used to estimate panel regression models, fixed and random
effects models. The results indicate that bank size and loan to assets ratio explains
about 14% and 10% of the variation in a bank’s profitability as measured by return on
assets. The null hypothesis of no significant relationship between NPL and ROA was
not rejected, meaning that non-performing loans have no effect on the profitability of
commercial banks in Namibia. This implies that there is a need for commercial banks
to transform more deposits into loans in order for them to increase interest-bearing
assets. The study findings stress the need for commercial banks to transform more
deposits into loans in order to increase interest-bearing assets. The positive effect of
bank size on profitability suggests possible scale efficiency as a result of the expansion
in bank size. The study further recommends that, banks must continue to closely
monitor inflation to stabilise the economy. Commercial banks must show resilience to
learn from recent experiences, demonstrate courage to tackle challenges and exploit
opportunities embedded in tribulations experienced. The study further recommended
that, the banks should further be committed to deliver monetary, price and financial
stability
Description
A thesis submitted in partial fulfilment of the requirements for the degree of master in business administration- Finance
Keywords
Return on assets, Non-Performing-Loans, Commercial banks, Fixed effect model