Nexus between Non-Performing Loans and Bank Profitability: A Case from the Pakistan Conventional Banking Sector

Abstract

Banks represent the backbone of a nation's economy and the global banking landscape has undergone an important transformation over the past two decades. A common impact affected consumers as well as sizable firms because of these changes. This study focuses on Pakistan's banking sector when specifically considering typical banks during 2015, 2024. It digs into key financial indicators such as the amount of capital banks hold (capital adequacy) and their overall size. The level of non-performing loans (NPLs) along with their profitability are also analyzed. Good corporate governance's major role is also explored in the research. It is a key element for bank achievement. Some important connections were found via the study analyzing annual reports along with financial statements. It turns out that a bank's size and its capital reserves are linked closely to the amount of its bad loans. Furthermore, the strong corporate governance showed something of interest. It increased profitability. The study did also reveal in an interesting way a link that is direct between bank profitability and loans that are bad. In these findings, banking leaders and policymakers can find some valuable perceptions. They highlight that strong governance and effective risk management are what they need so that Pakistan's banking system remains stable and performs well.