Bank-Specific and Social Factors of Non-Performing Loans of Pakistani Banking Sector: A Qualitative Study

Purpose: This study aims at building up a model clarifying the relationship mong bank-specific, social factors and non-performing loans on one hand and on the other hand, exploring this model in the setting of Pakistani Banking sector as limited interest has been given in existing literature in defining the relationship among bank specific, social factors and non-performing loans. Design/ Methodology/ Approach: Based on the interpretive phenomenological approach, the study explores various influencing factors of Non-Performing Loans in unique setting of PakistaniBanking sector. The methodology helpsanalyse data about bank specific and social factors of Non-Performing Loans as well as to have an insight in examining the nature of their relationship with each other. Findings: The results show that various bank-specific factors like lenient credit terms, monitoring, bank ownership, bank size, diversification of loans and credit assessment have significant effect on Non-Performing Loans, whereas interest has a weak significance on NPLs. Thus, banks should carefully look after these factors in order to control NPLs. The social factor like corruption has an insignificant effect on NPLs and political pressure has been an important factor in explaining the Non Performing Loans, especially in case of state owned banks. The government needs to lessen down the level of interference in the financial decisions of the state owned banks so that these banks can independently make their credit decisions without any political pressure. Originality/value: This ground-breaking work on Non-Performing Loans and its factors may help the entire Pakistani banking sector to control NonPerforming Loans.