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

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.