The Analysis of Non-Performing Loans and the Implications on Profitability of Traditional Private Banks An Application on the Syrian Traditional Private Banking System

Abstract

The aims of this research is to analyze non-performing loans in traditional private Syrian banks and test their impact on the performance of these banks during the time period extending from the first quarter of 2011 until the third quarter of 2019. To achieve the objectives of the research, each of: Non-Performing loans as independent variable, net direct non-performing loans to total assets, capital adequacy ratio, bank size, and net loans to total deposits as control variables, and revenue on assets, earning per share to measure profitability, as dependent variables that measures banking profitability.

To test the research hypotheses, time series stability testing was implemented using unit root test, then Haussman test was implemented to determine the best model for hypothesis testing (Random Effects Model, and Fixed Effects Model).

The findings of the research can be summarized as follows: no significance impact of NPL (non-performing loans) into EPS (earning per share), nor into ROA (revenue on assets).

The research concluded a series of recommendations, the most important of which are: reducing investment in fixed assets, switching to electronic banking, the need for banks to control the volume of investments in credit facilities, in line with the bank's ability to manage its risks, and the necessity to Syrian Centeral Bank to prepare ranking for customers based on trust similar to ranking such as Modis, Stanard Brose, giving rules to provide loans, and to measure accurately credit risks, and avoiding probable non-performing loans.