Abstract
Abstract Background: There are several factors that lead to the growth or decline of the nonperforming loans, such as macroeconomic variables and bank specific variables, banks ownership structure, corruption and information sharing. Among them one of the main factors that affect the non-performing loans are the corruption. In developing countries corruption plays very important role in the growth of non-performing loans. Objectives: This study investigates the impact of corruption at economy level and institution level on the nonperforming loans. This study also examines the association of information sharing between depositors, lenders and financial institutions. Methods/Approach: The current study used time series data over the period of 2001 to 2010 and employed OLS method. Results: The results provide no significant association of corruption and information sharing with non-performing loans. Conclusions: The results suggest no significant impact of corruption on non-performing loans because of the nature of the data used, but as literature provides significant impact of corruption on non-performing loans, therefore State Bank of Pakistan and commercial banks can reduce the level of non-performing loans by reducing the chance of corrupt practices by following the rules and regulation of credit allocation, supervision and loan monitoring.
Highlights
In order to achieve the recovery of global economy, the consumer and investor confidence in the markets must be restored
The current study applied OLS to investigate the association of corruption and information sharing with Non-performing loans (NPLs)
The results provided no significant association of two indices of corruption and one index of information sharing with NPLs
Summary
In order to achieve the recovery of global economy, the consumer and investor confidence in the markets must be restored. Increase in global oil prices, energy crisis, underutilization of production facilities, high per unit cost, circular debts, decline in capital flow and growth, budget deficit and growth in corruption played important role in slowing down the recovery of economy. All these pressures on the economy and industry translated in the inability of households and firms to repay their debts, resulting in the growth of Non-performing loans (NPLs). Conclusions: The results suggest no significant impact of corruption on non-performing loans because of the nature of the data used, but as literature provides significant impact of corruption on non-performing loans, State Bank of Pakistan and commercial banks can reduce the level of non-performing loans by reducing the chance of corrupt practices by following the rules and regulation of credit allocation, supervision and loan monitoring
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