Chapter 4: Data analysis and findings

Analysis 4.1: Regression Analysis:

To perform this analysis, the 30 years nonperforming loan (NPL) data is collected. For the
purpose of this analysis, the following table lists some variables of NPL-
NPL=interest rate+ collateral value + single borrower limit+ banking charge
Here,

Non-performing loan= dependent variable that means the variable represents the output or
effect, or is tested to see if it is the effect

Interest rate, collateral value, single borrower limit & banking charge= independent
variables that means the variables represent the inputs or causes, or are tested to see if they are
the cause.
We have to derive the linear regression analysis, coefficients and the degree of relationship
between the dependent and independent variables:

After the input of all data set in excel spread sheet, we can derive these following results:

Derivation of Linear regression equation:

From the above output table, we can derive the equation:
Y= a+ biX1+ b2X2 + b3X3+ b4X4+……….
Putting the values from coefficient column from the table, we can find the values of a, b1, b2, b3,
b4 and the required multiple regression equation is:
Here,
b1= first regression coefficient ; it represents the difference in the predicted value of Y, the
dependent variable which represents NPL for each one-unit difference in the independent
variable X1- which represents interest rate . If X2, X3 & X4 or the other three independent
variable-collateral value, single borrower limit and banking charge remain constant.
b2= second regression coefficient; it represents the difference in the predicted value of Y, the
dependent variable which represents NPL for each one-unit difference in the independent
variable X2- which represents collateral value. If X1, X3 & X4 or the other three independent
variable- interest rate, single borrower limit and banking charge remain constant.

b3= third regression coefficient; it represents the difference in the predicted value of Y, the
dependent variable which represents NPL for each one-unit difference in the independent
variable X3- which represents single borrower limit. If X1, X2 & X4 or the other three
independent variable- interest rate, collateral value and banking charge remain constant.
b4= fourth regression coefficient; it represents the difference in the predicted value of Y, the
dependent variable which represents NPL for each one-unit difference in the independent
variable X4- which represents banking charge. If X1, X2 & X3 or the other three independent
variable- interest rate, collateral value and single borrower limit remain constant.

Interpretation of the result:

i. In this equation, Y or NPL is the dependent variable and the independent variables are interest
rate, collateral value, single borrower limit and banking charge. From the equation, we can
derive that- b1=5.081E+11 or 508125225608.46 indicates that if lending rate rises , NPL also
increases by 508125225608.46

b2= 5425.5119 indicates that if the collateral value increase, NPL increases by 5425.5119 taka

b3= -8820.127444 indicates, if the single borrower limit increases, NPL decreases by -
8820.127444 tk

b4=12219756.64 indicates, if the banking charge increase, NPL also increases by 12219756.64
tk.

ii. The relationship among the variables in relative terms can be estimated with the help of
coefficient of correlation(R). From the regression statistics table, we can find R= 0.862936258 or
86.29% which indicates that a strong positive relationship among variables.

iii. The explanatory power of independent variable can be assessed with the help of R^2( R
square) which is coefficient of multiple determination. From the regression table, we find that
R^2= 0.744658985 or 74.46%; which indicates 74.46% variation in NPL can be explained by the
combined variation of independent variables- interest rate, collateral value, single borrower limit
and banking charge.

iv. The relative importance of the independent variables can be assessed with the help of beta
coefficients. From the coefficient table, we see that b1= 508125225608.46, b2= 5425.5119, b3= -
8820.12 and b4= 12219756.64. So we can conclude that interest rate or b1 exerts most
importance among all independent variables.

v. Significance level should be Sig ≤ 0.05

From the ANOVA table, we see the regression model is statistically significant because it is
significant at 4.0012E-07 or 0.0000004 level that can be considered as 0; which is less than 0.05
level.
From the P value table, we see that b1 is statistically significant because it is significant at 0
level, which is less than 0.05. From P value table, we can conclude that the other three variables
are not significant because b2= 0.46, b3=0.36, b4= 0.14 which all are greater than 0.05.