Credit Risk and (Influencing Factors of) Non-Performing Loans

Abstract

The main purpose of each banking institution is to operate profitably in order to maintain a stable and sustainable growth. However, the existence of high levels of non-performing loans (NPLs) in the banking industry negatively affects the level of private investment and limits the scope of bank credit to borrowers. It is a common consensus that the aggregate level of non-performing loans is associated with bank failure and financial erosion in both developing and developed countries. The dependent variable under investigation was the non-performing loans rate (NPL) used in a panel data model for 78 countries for the period 2007-2015. Banking performance as well as economic growth negatively and statistically significantly influence the rate of non-performing loans while the degree of accessibility to banking products and services is positively associated with the NPL rate. Another conclusion of the study would be that the degree of concentration of the banking market is not statistically significant when associated with the existence of non-performing loans.