Determinants of non-performing loan facility in commercial bank Industry, Batticaloa district- Sri Lanka

Abstract

The banking sector is an inevitable financial service sector to support the development of the nation through channelizing funds for productive purpose, intermediating flow of funds from surplus to deficit units and supporting financial and economic policies of the government. The Sri Lankan commercial banking sector accounts a major portion of financial intermediation and acknowledged as main tool of monetary policy, credit channel and facilitator for payment systems. Maintaining asset quality and profitability are critical for banks survival and growth. A major threat to the banking sector is a prevalence of Non-Performing Loans (NPLs).The NPLs are the cursor for poor regional and economic development. Recent records motions that the trend of NPLs in Sri Lanka swings upward, especially the double effect in 2012. This study questions why the commercial banks are far behind in managing the NPLs. As a result, this research aims to understand and explain employing qualitative methodology to identify the determinants of the NPLs in commercial banks in Batticaloa District of Sri Lanka. Findings reveal that there are several banking specific factors, customer related specific factors and macro environment factors influenced the NPLs.