Firm Characteristics, Corporate Governance and Non-Performing Loans (NPLs) of State-Owned Commercial Banks of Bangladesh

Non- Performing Loans (NPLs) are the major sources of risk for any lending institution. At present, NPL ratio of State-Owned Commercial Banks (SCBs) of Bangladesh is well beyond comfortable level. This paper examines firm-characteristics and corporate governance measures as the firm-specific determinants of NPLs. The current research considers six years data of six SCBs to assess the relationship of firm-specific determinants such as management quality, moral hazard through excessive lending, cyclicality of credit, board size and board independence with the level of NPLs. Results of this study indicate that cyclicality of credit, moral hazard, and corporate governance attributes such as board size and board independence are significantly associated with NPL ratio. The major implication of these findings is to assist policy makers, regulators and management of banks for enhancing their understanding about the role of different firm-specific factors and corporate governance practices on NPLs in SCBs of Bangladesh