Abstract
The objectives of this study to assess the state of financial stability of commercial banks in Pakistan and
then estimate how good, bad and worst economic conditions would influence the stability. Our design of
the study is a mix of techniques. Pakistan have not experienced financial crisis due to some shocks,
therefore stress events and its effects not included in design. This study examines the effect of nonperforming loans on financial stability empirically. Based on the above premise, this thesis investigates the
association of financial stability with non-performing loans for all commercial banks of Pakistan for the
period of 2014-2018. The study used the 27 commercial banks having 162 bank year observations. The
study measured of financial stability (FS) through the financial leverage ratio and liquidity ratio using the
common effect model. For the non-performing loans this study uses the non-performing loan ratio. Using
secondary data that is panel in nature and applying panel data models for analysis, the study finds out that
non-performing loans negatively associated with financial stability of commercial banks in Pakistan.
FAZLI RAHMAN KHAN, Dr. MUHAMMAD NISAR KHAN, Dr. SAIMA UROOGE. (2020) Non-Performing Loan and Financial Stability of Banking Industry in Pakistan, International Review of Management and Business Research, Volume 9, Issue 4 .
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