Macroeconomic and Bank-Level Factors Impact on NPL Ratio

Abstract

The paper is aimed at analyzing and assessing the impact of macroeconomic and bank-level factors of non-performing loans. Those factors are very important and have become increasingly popular. The non-performing loan ratio is one of the most important tools used to reflect the stability of the banks. The main reason of this study about is to examine which macroeconomic and bank-level components influence the NPL of Armenian banks. The study focused on Armenian banks also provides comparisons with the US banking sector. The linear regression models and correlations analysis methodology was used to decide and assess the critical relationship between the periods from January 2013 to December 2020. The main results of this study could be useful for bank stability and loan portfolio management, and shown that capital adequacy ratio, return on assets, liquidity ratio, return on equity from bank-level factors and yield curves, national currency from macroeconomic factors has no significant effect on explaining the NPL ratio in a multidimensional perspective. On the other hand, the consumer price index, the economic activity index and non-residents loans ratio have a negative impact on the NPL ratio. Unemployment rate, operating efficiency, USD/AMD exchange and fuel price have a positive effect on the NPL ratio.