The Influence of Non-performing Assets on the Profit of Commercial Banks in Sri Lanka

Abstract

Licensed commercial banks may be known as organizations that participate in the financial intermediation process, which entails some risk in carrying out their business. This study looked at how non-performing loans and advances, together known as net non-performing assets, impact commercial banks' net profits. The study concentrated on examining the occurrences in relation to Sri Lanka. The Central Bank of Sri Lanka's economic data library continues to be the principal source of secondary data used in this study. The licensed banks in the Sri Lankan banking system continue to be the target audience for the study, from which 24 licensed commercial banks were conveniently chosen. Time-series data from 2001 to 2020 related to the variables have been collected to ensure the accuracy of the research. The data has been analyzed statistically with the aid of E-Views version 10. The results of the regression analysis have revealed that there is a significant impact on the net profit of the commercial banks in Sri Lanka from the non-performing assets of the bank, further revealing that the relationship existing between the variables under consideration is negative, which leads to conclude that the non-performing assets adversely affect the net profit of the commercial banks in Sri Lanka. The researcher suggests future studies focus on a diversified sample to gain a comprehensive overview of the banking sector of Sri Lanka. The results of this research are useful for Sri Lankan commercial banks in managing their credit risk.