Section 1:


Student No:

Course :

MBA Global

Year of Study (Cohort):

Submission Date


Please note that this form must be completed and submitted via the digital drop-box on Blackboard dissertation site by the deadline set by the MBA Global Dissertation Lead.

The proposal is not marked but is intended to help you start working on your project and to allocate you an advisor.

Section 2: Research Topic.

The main focus of this research is to identify the factors that affect the Non-Performing Loans in the Banking sector of Sri Lanka as a case study of the National Savings Bank which is a 100% state-owned bank. The International Monetary Fund (IMF) defined loans as non-performing when the instalment of the loan is overdue by more than 90 days. The higher level of NPLs would result in capital erosion of the bank (Ziaul & Saiful, 2018) and an underperforming banking sector (Li Hu, Li, & Ho Chiu, 2007). Further, it leads to a financial crisis as it adversely affects the bank itself and ultimately the whole economy (Balgova & Plekhanov, 2016). Failure to manage the upward trend of NPLs would result in liquidity problems and the solvency of the bank (Kaaya and Pastory, 2013). Sri Lanka is experiencing an upward trend of NPLs. The Central Bank of Sri Lanka forecasts that the NPL ratio as a percentage of all bank’s loans reaches 8% at the end of 2022 (Ranasinghe, 2022). During 2021 NPL ratio of Sri Lanka stood at 4.5% compared with the 4.9% ratio in 2020 (Central Bank of Sri Lanka, 2021). Therefore, it is important to identify the causes of Non-Performing Loans in the Banking sector, as the NPLs are linked with the soundness of the banking system and the whole economy.

Section 3: Research Aim and Objectives.

Research Aim: Examine the factors that affect the Non- Performing Loans in the Banking Sector of Sri Lanka

Research Objectives:

A critical examination of the academic literature on Non-Performing Loans in the Banking Sector.

Justify and explain the key research methodology, including research philosophy, data collection method, sampling strategy, and data analysis method.

Present and critically analyze the findings of both primary and secondary data of the research and identify the relationship between literature and research findings.

Make conclusions and recommendations regarding the factors that affect the Non-Performing Loans in the Banking Sector of Sri Lanka.

Section 4: Literature review.

Non-Performing Loans

A loan becomes non-performing when the borrower neglected to pay the installment or the interest of the loan for a specific period and different countries use different criteria to classify loans under NPLs (Kuzucu &. Kuzucu, 2019). According to the International Monetary Fund (IMF) loans become non-performing when the installment of the loan is overdue by more than 90 days. Non-Performing Loans, known as bad loans or bad debt, are burdens to the bank itself and the whole economy (Kuzucu &. Kuzucu, 2019).

Credit Risk

Credit Risk is defined as the potential loss due to non-payment or late payment by bank borrowers or counterparties (Vaidyanathan, 2013). This happens when counterparties failed to meet their obligations. Credit risk is more common and crucial for banks as lending is their core business activity (Ekanayake, 2018). Therefore, credit risk is linked with Non-Performing Loans, and the volume of NPLs reflected by it (Ekanayake, 2018).

Credit Appraisal

Credit Appraisal is considered the heart of the decision-making process of high-quality lending. (Thisika & Muturi, 2017 cited in Ndero, Wepukhulu, & Bogonko, 2019). It mainly evaluates the repayment capacity of the borrowers. In other words, the creditworthiness of the borrowers and the future cash flows with risk attached (Ndero, Wepukhulu, & Bogonko, 2019). In credit appraisal 5Cs namely Character, Capacity, Capital, Collateral and Conditions are important (Kevin & Omagwa, 2017). The weak credit appraisal would result in a higher level of NPLs and adversely affect the profitability and the performances of the banks.

Agency Theory

The principal-agent problem is a common problem in the banking industry, and it has an adverse impact on the performance of the banks (Kunt,1991). According to Ciancanelli and Gonzalez (2000), there is a difference between the principal-agent problem in the banking sector and other organizations because other organizations consider shareholders as only residual claimants whereas banks should consider the interest of both shareholders and the depositors (Srivastav & Hagendorff, 2015 and Fama & Jensen, 1983). Therefore, agency theory would worsen the risk-taking of the banking sector resulting in higher NPLs due to excessive lending (Srivastav & Hagendorff, 2015).

Theory of Asymmetric Information

The asymmetric information problem is widely spread in the credit market, especially in the banking sector because lending is the core business activity of the bank (Auronen,2003). There is uncertainty about the creditworthiness of the borrower when banks offer credit to them (Ariccia, 1998). As a result, banks face problems when distinguishing between bad and good borrowers. This would result in adverse selection and moral hazard problems in banks and ultimately higher levels of NPLs (Bofondi & Gobbi, 2003 cited by Omar & Makori, 2018).

Section 5: Research Methodology.

Research philosophy:

Epistemology: Positivism

Ontology: Objectivism

Method of data collection:

Both primary and secondary data

The Primary data will collect from the employees of the National Savings Bank using an online questionnaire

The Secondary data will collect from the Annual Reports of the National Savings Bank and the Annual Reports of the Central Bank of Sri Lanka

Sampling Strategy:

Non-probability sampling method

40-50 National Savings Bank branches within the Western province of Sri Lanka.

Data analysis method:

Quantitative data analysis

Data will analyze using StataSE 13 software

Section 6: Timetable of Activity. You should complete the GANTT chart below by placing an X in each box to represent when you estimate an activity is due to take place. Make sure you know your final hand-in date. It may make sense to work backwards from that. You may wish to alter this timetable of activity to reflect your activity over weeks rather than months – this is entirely up to you.)








MARCH 2023

APRIL 2023

Submit proposal


Allocated supervisor


Supervision Begins


Literature review




Data collection






Introduction & Conclusion


Complete first draft




Submit final draft


Section 7: Ethical considerations. Consider what ethical implications your primary research may have. This section is designed to ensure that ethical issues in your proposed research have been fully considered. The following questions are based on University guidelines and should all be answered ticking either Yes, No, or not applicable (N/A).





Does the aim and method of your research respect the independence of your participants?


Are measures in place to ensure confidentiality for participants?


Are participants clearly asked to give consent to take part in the research?


Can participants withdraw at any time if they chose?


If you ticked NO to any of the above questions, you should indicate below how you

intend to address these ethical concerns.





Do the objectives of your research lead participants to break confidentiality or otherwise engage in deceit?


Will your respondents be in a position where they might feel coerced into taking part in the research?


Will the data be used in ways not fully explained to the participants or respondents?


Is your research at all likely to cause physical or psychological harm or stress to participants?


Is the impartiality of the research at risk of being compromised by dependence upon the support of a particular sponsor or organization?


If you ticked YES to any of the above questions, you should indicate below how you intend to address these ethical concerns.

Section 8: Student Signature

I declare that the questions on section 7 have been answered correctly, and that if ethical issues emerge in the course of my research then I will notify my supervisor immediately.

Section 9: Reference List

Ariccia, G.D. (1998) Asymmetric Information and the Market Structure of the Banking Industry. Available at: (Accessed: 12 October 2022).

Auronen, L. (2003) Asymmetric Information: Theory and Applications. Available at: (Accessed: 12 October 2022).

Balgova, M & Plekhanov, A. (2016) The economic impact of reducing non-performing loans. Available at: 10 October 2022).

Central Bank of Sri Lanka, (2021). Annual Report 2021. Available at: (Accessed: 10 October 2022).

Ciancanelli, P & Gonzalez, J.A.R. (2000) ‘Corporate Governance in Banking: A Conceptual Framework’, SSRN Electronic Journal. Available at: (Accessed: 12 October 2022).

Ekanayake, N. (2018). ‘The Impact of Bank-Specific and Macroeconomic Factors on Non-performing Loans in Sri Lankan Commercial Banks’, Journal of Modern Accounting and Auditing, 14(11), pp.611-627. Available at: (Accessed: 11 October 2022).

Fama, E. F & Jensen, M.C. (1983) ‘Agency Problems and Residual Claims’, The Journal of Law & Economics, 26(2), pp. 327-349. Available at: (Accessed: 12 October 2022).

Kaaya, I.D., & Pastory, D. (2013). ‘Credit Risk and Commercial Banks Performance in Tanzania: A Panel Data Analysis’, Research Journal of Finance and Accounting, 4, pp. 55-62. Available at: (Accessed: 11 October 2022).

Kevin, M. G. & Omagwa, J. (2017) ‘Debtors Management and Financial Performance of Selected Microfinance Institutions at Nairobi City County in Kenya’. International Journal of Scientific and Research Publications, 7(12), pp.464 – 485). Available at: (Accessed: 14 October 2022).

Kunt, D.A. (1991) Principal-Agent Problems in Commercial-Bank Failure Decisions. Available at: (Accessed: 11 October 2022).

Kuzucu, N &. Kuzucu, S. (2019). ‘What Drives Non-Performing Loans? Evidence from Emerging and Advanced Economies during Pre- and Post-Global Financial Crisis’, Emerging Markets Finance & Trade, 55, pp.1694-1708. Available at: (Accessed: 11 October 2022).

Li Hu, J & Li, Y & Ho Chiu, J. (2007) Ownership and Nonperforming Loans: Evidence from Taiwan’s Banks. Available at: (Accessed: 10 October 2022).

Ndero, S.W., Wepukhulu, J. M., & Bogonko, J. B. (2019) ‘Relationship Between Credit Appraisal and Loan Performance by Commercial Banks in Uasin Gishu County, Kenya’, European Journal of Economic and Financial Research, 3(4), pp.16-29. Available at: (Accessed: 13 October 2022).

Omar, A.K & Makori, D (2018) ‘Credit Information Sharing and Financial

Performance of Commercial Banks in Kenya’, International Academic Journal of Economics and Finance, 3(2), pp. 160-178. Available at: (Accessed: 13 October 2022).

Ranasinghe, I. (2022) ‘Non-Performing Loan ratio to reach 8% by end-2022’, The Morning, 19 August. Available at: (Accessed: 10 October 2022).

Srivastav, A & Hagendorff, J. (2015) ‘Corporate Governance and Bank Risk-taking’, Corporate Governance An International Review, 24(3). Available at: (Accessed: 12 October 2022).

Vaidyanathan, K. (2013). Credit Risk Management for Indian Banks. Ebook Central. Available at: https://ebookcentral-proquest (Accessed: 11 October 2022).

Ziaul, M & Saiful, M. (2018) ‘Non-Performing Loan as Eroding Factor of Capital Adequacy: Evidence from Banking Industry in Bangladesh’, Romanian Economic and Business Review, 13(2), pp.23-29. Available at: (Accessed: 10 October 2022).