Abstract
PurposeThe size of non-performing loans (NPLs) plays a key role in the stability of the banking sector of a country. The factors that explain the NPLs contain very important information for banks. Studies in this regard with respect to developing states such as Pakistan have received little attention. This study aimed to scrutinize the determinants of NPLs observing a case of the banking sector in Pakistan over the period from 2005 to 2017.Design/methodology/approachThe sample consists of the banking sector (i.e., commercial banks) listed in Pakistan Stock Exchange over the period of 2005–2017. The banking factors, including profitability, operating efficiency, capital adequacy and income diversification, were evaluated. The estimations were done by regression modeling using random and fixed effects through STATA software.FindingsResults show that the operating efficiency and profitability indicators have a negative association with NPLs but were statistically significant, while capital adequacy and income diversification have a negative association with NPLs but were statistically insignificant.Research limitations/implicationsThe present study has considered limited banking indicators as determinants of NPLs and was limited to a specific time period from 2005 to 2017.Originality/valueThe study is an attempt to investigate various banking factors that affect the NPLs with respect to developing economies such as Pakistan.
Highlights
Financial crises are one of the most immediate and important issues for the banking sector globally, especially in developing countries
4.4 Discussions Comparing with the studies conducted by various researchers on non-performing loans (NPLs) and bank-specific factors, our results show that there is a negative association between Return on assets (ROA) and NPLs
The results indicate a negative association between operating efficiency and NPLs for the specified time period
Summary
Financial crises are one of the most immediate and important issues for the banking sector globally, especially in developing countries. Over the past few years, remarkable financial crises have been witnessed in numerous countries. The latest financial crises were faced in the US subprime mortgages due to the financial credit crunch that occurred in 2007 and 2008, resulting in financial crises and financial market instability. Earlier in 1997, the developing countries in East Asia have suffered the financial crises in the form of a significant outflow of foreign investment (Soedarmono et al, 2011). Monetary crises are highly marked by the ascent of non-performing loans (NPLs) in banking advances.
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
