Factors Influencing Non-Performing Loans: Empirical Evidence From Commercial Banks In Malaysia

The banking structure is a vital component of every country's financial machinery and is crucial for economic progress. The purpose of this study is to analyse the factors influencing Non-Performing Loans among conventional banks in Malaysia which are CIMB, Malayan Banking Berhad, Affin Bank Berhad, Hong Leong Bank and RHB Bank Berhad. The factors that influence Non-Performing Loans among these banks are Capital Adequacy Ratio (CAR), Loan to Deposit Ratio (LTDR), Bank Size and Net Interest Margin (NIM). The study spans a period of 10 years, encompassing data from 2010 to 2020. This study is a quantitative study. Our findings revealed a significant relationship between CAR and NIM for NPLs. The problem revolves around the significant threat posed by Non-Performing Loans (NPLs) to the banking sector, particularly among young Malaysians. This threat is driven by a complex mix of factors, including escalating credit card debt, societal pressures, and financial illiteracy, ultimately risking financial stability and reducing banks' lending capacity within the banking system. Strong capital reserves and healthy profitability serve as crucial buffers against credit default, highlighting the importance of these factors for mitigating future NPLs challenges. While BSIZE and LTDR did not exhibit a direct impact on NPLs in this study, understanding how these factors interact with other market or bank-specific variables remains an important area for further research.