Impact of Non-Performing Loans on Bank s Profitability: Empirical Evidence from Commercial Banks in Kosovo

Purpose:The study examined the impact of nonperforming loans on Kosovo banks' profitability over a time span of 2010 to 2019. Methodology:The traditional profit theory was employed to formulate profit, measured by Return on Assets as a function of the ratio of Non-Performing Loans, Liquidity Risk, and Bank Size as control variables.We have employed multivariable linear regression to estimate the determination of the profit function. Findings:The results showed that the effect of nonperforming loans on the profitability is statistically significant and shows that for each 1% increase in NPL, the Return of Assets decreases by 0.19%, holding other variables constant.Originality/Value: The commercial banks in Kosovo, it is recommend following a balanced approach between portfolio growth and credit risk exposure.