Abstract:
This study explores the determinants of non-performance advances (NPL)
related to the small and medium enterprises (SMEs) sector in commercial banks
in Sri Lanka that operate in the Northern Province. Institutional-related factors
and borrower-related factors are the two main independent variables of this
study. Furthermore, credit assessment, credit monitoring, and credit size were
identified as variables of institutional-related factors; similarly, characteristics
of the borrower and business management skills of the borrower are listed
under borrower-related variables. Bank professionals are the sample of this
study, and responses were obtained from 173 samples using the cluster random
sampling method. A self-administrative questionnaire was used for the data
collection, with a reliability Cronbach's alpha value of 0.862. The findings
identified institutional-related and borrower-related factors that significantly
impact SMEs NPL. Further, institutional-related variables of credit assessment
and monitoring and borrower-related variables of the business management
skills of the borrowers have a significant impact on SMEs NPL. Simultaneously,
the institutional-related variables of credit size and the borrower-related
variables of characteristics of the borrower have no significant impact on SMEs
NPLs in commercial banks in the Northern Province. The study could be helpful
to the country's lending unit's decision-makers and economic policymakers.
