Political Influence on the Level of Non-performing Loans in Bangladesh

Abstract

The objective of this study is to develop a framework that explains how

political influence shapes the level of Non-Performing Loans (NPLs)

in the banking sector through a literature review approach. NPLs pose

a significant threat to financial stability, and political interference

through directed lending and regulatory pressure can exacerbate the

problem. The study also examines the political influence on NPLs by

including specific moderating factors, i.e., political campaign staff,

nepotism, anti-corruption legislation, audit committees, boards of

directors, political interference, regulatory quality, corporate

governance, bank ownership structure, and political patronage,

alongside the independent variable, political influence. The study

concludes that political party affiliation, personal guarantees of

collateral, borrowers’ political and social backgrounds, reliance on

politically aligned boards of directors and audit committees,

insufficient training and development regarding problematic loans, and

misguidance from the central bank play crucial roles in increasing

NPLs. The findings suggest that political stability is essential for

keeping NPL ratios low, based on theoretical discussions, although no

empirical results have been presented.