An investigation into the effect of non-performing loans on the profitability of commercial banks in Namibia

This study investigates the effect of non-performing loans on the profitability of major commercial banks in Namibia for the period 2015 to 2020. In order to achieve this objective, pooled annual data for six commercial banks obtained from the banks’ financial statements was used to estimate panel regression models, fixed and random effects models. The results indicate that bank size and loan to assets ratio explains about 14% and 10% of the variation in a bank’s profitability as measured by return on assets. The null hypothesis of no significant relationship between NPL and ROA was not rejected, meaning that non-performing loans have no effect on the profitability of commercial banks in Namibia. This implies that there is a need for commercial banks to transform more deposits into loans in order for them to increase interest-bearing assets. The study findings stress the need for commercial banks to transform more deposits into loans in order to increase interest-bearing assets. The positive effect of bank size on profitability suggests possible scale efficiency as a result of the expansion in bank size. The study further recommends that, banks must continue to closely monitor inflation to stabilise the economy. Commercial banks must show resilience to learn from recent experiences, demonstrate courage to tackle challenges and exploit opportunities embedded in tribulations experienced. The study further recommended that, the banks should further be committed to deliver monetary, price and financial stability