Commercial Bank Loans Research Articles

Regulatory Capital is a Panacea for Efficiency, Credit Growth and Reducing Non-Performing Loans in Commercial Banks

This study examined the effectiveness of regulatory capital in enhancing efficiency and credit growth and reducing bad loans in commercial banks listed on the Pakistan Stock Exchange (PSX) from 2010 to 2019. Precisely, the impact of capital adequacy ratio (CAR) was studied on net interest margin (NIM), credit growth (CR) and non-performing loans (NPLs). The impact of capital adequacy regulations was assessed by retrieving data from financial statements analysis (FSA), Bank Financial statements and the World Bank website. Panel regression models including ordinary least squares (OLS), fixed and random effects under robust title were applied in this study. Results revealed that the implementation of stringent CAR plays the role of panacea and increases interest margin & credit growth and a reduction of NPL in Pakistani commercial banks. The study provides practical results for regulators to customize regulations on credit growth to reduce non-performing loans and maintain healthy growth of loans by not compromising on interest margins as well as maintenance of minimum capital adequacy ratios. With the high significance of stringent minimum capital adequacy for banks, the findings of the study are valuable for regulators, banks, auditors and investors, as capital adequacy ratio commonly plays the role of Panacea in terms of efficiency, credit growth and reduction in non-performing loans. Keywords: capital adequacy ratio, efficiency, credit growth, non-performing loans

Deprived Sector Lending and Non-Performing Loans in Nepal

This study investigates the empirical impact of deprived sector lending on the nonperforming loans of commercial banks in Nepal using secondary data collected from 27 commercial banks from the fiscal year 2009 to 2018 with 262 observations. The study employed the OLS regression method for the robustness test of the result. The study establishes empirical relation between deprived sector lending and nonperforming loan of banks which was the major motivation of this study. The basic regression result shows that beta coefficient of DSL is negative which indicates higher the ratio of deprived sector lending, the lower would be the NPL and vice-versa. Similarly, this study also examines the DSL movement's impact on NPL. The result shows that the beta coefficient of ∆DSL is significantly negative with ∆NPL. This indicates that the higher the growth of DSL, the lower would be NPL growth and vice-versa. This shows that the influence of DSL is very low as per this empirical result. Overall, the study shows there is an inverse relationship between deprived sector lending and nonperforming loan of banks. The result indicates that the remark of commercial bank’s on the deprived sector lending policy of NRB is not true. The operational cost might increase with direct lending to deprive sector and that leads to decrease in the bank’s overall profit but not increases their NPL.

Determinants of commercial bank loan and advance disbursement: the case of private Ethiopian commercial banks

PurposeThis paper aimed to investigate the determinants of loans and advances from commercial banks in the case of Ethiopian private commercial banks.Design/methodology/approachThe study randomly selected seven commercial banks to represent the population stratified on their asset, deposit and paid-up capital amounts. The study utilized an unbalanced panel data model as each bank started operation at a different period of time and considered the period 1995–2016 for secondary details.FindingsThe findings showed that the deposit size, credit risk, portfolio investment, average lending rate, real gross domestic product (GDP) and inflation rate had significant and optimistic effects on the lending and advancement of private commercial banks. On the contrary, liquidity ratio had significant and negative effects on private commercial bank loans and advances. Finally, the study forwarded a feasible recommendation for concerned organs to focus on deposit size, credit risk, portfolio investment, average lending rate, real GDP, inflation rate and liquidity ratio. The results of this study will help banking industry policymakers and planners understand how to minimize inflation and unemployment by improving development and sustainable economic growth.Originality/valueThe findings of this study can also affect the general attitudes of a society by increasing knowledge and improve the quality of life for the general public.

Factors Influencing the Recovery of Non-Performing Loans in Commercial Banks: The Case of Exim Bank

This study aimed at evaluating different factors that influence the recovery of NPL by analyzing the management of NPL recovery in commercial banks in Tanzania. Using Exim Bank as the case study, the study evaluated NPL ratios, influence of internal management on recovery strategies, influence of third-party activities on NPL recovery and effects of regulatory guidelines on the recovery of NPL. SPSS was used to test the strength of the relationships between the study variables, using the Pearson Correlation Coefficient method. The study concluded that there is a negative strong relationship between NPL and net income, a positive strong relationship between internal management strategies and NPL recovery, a negative strong relationship between third-party recovery activities and NPL recovery and a positive strong relationship between the regulatory guidelines and NPL recovery. Keywords: Non-performing Loans, Commercial Banks, Exim Bank Tanzania DOI: 10.7176/EJBM/13-14-05 Publication date: July 31 st 2021

Ways to Increase the Loan Income of Commercial Banks

Relevance of the topic. Since loans have the highest share in the structure of assets in universal commercial banks, income from loans plays an important role in shaping their income base. In turn, the change in the level of return on loans is directly related to changes in the quality of the bank's loan portfolio. Therefore, the analysis of the quality of the loan portfolio allows to identify problems associated with increasing the profitability of loans.The purpose of the study is to develop scientific proposals aimed at increasing the profitability of loans of commercial banks of the Republic of Uzbekistan.Results. The article substantiates ways to ensure a stable level of interest income from loans in the gross profit of commercial banks; the expediency of increasing the profitability of loans by ensuring that the level of reserve allowances for loan losses is at the level generally recognized in international banking practice.Practical significance. The proposals developed in the course of the research can be used in the development of measures aimed at increasing the profitability of loans of commercial banks.Research limitation. The low level of diversification of the loan portfolio of large commercial banks of the Republic of Uzbekistan hinders the reduction of credit risk in their activities.

Effect of Agricultural Financing on the Performance of Agricultural Sector in Nigeria

The study examined the effects of agricultural financing on the performance of agricultural sector in Nigeria using annual time series data. The data for the study was sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin. Contribution of agriculture to GDP was used as proxy for the performance of agricultural sector, commercial banks loan to agriculture, rain fall, government expenditure to agriculture and interest rate were used as proxy for explanatory variables. Following unity in the order of integration, Johansen cointegration approach was used to check for the long run relationship among the variables. Vector autoregressive estimate the vector correction mechanism was used to examine the speed of adjustment of the variables from the short run dynamics to the long run equilibrium. The study found that there is long run relationship among the variables. Specifically; there is significant and long run effect of Agricultural Credit Guarantee Scheme on Contributions of agriculture to GDP. Commercial banks loans to agriculture showed positive and significant effect on Contributions of agriculture to GDP within the reference period. The coefficient of multiple determinations explained the variation in the dependent variable jointly explained by the independent variables. The study recommend that there should be increase in the amount which the agricultural credit guarantee scheme inject into the sector on annual basis and proper supervisory measures should be constituted in order to ensure efficient application and use of the money.

Impact of Agriculture on Bank Credits in Nigeria: An Econometric Analysis

In most developing countries, agriculture is both the main sector that provides employment to large segments of the population and the key to sustained economic growth of the countries like Nigeria. This study presents an empirical analysis of the Impact of Agriculture on Bank Credit in Nigeria.. Also, highlighted are the problems of agricultural production in Nigeria and the strategies for agricultural transformation of the economy. Our findings revealed that agricultural variables have impact on food industries in Nigeria. Consequently, the macro-econometric model in this study contributes to the development of policy and programming by shedding light on the choice to be made and indicating the magnitude and direction of responses that can be expected from changes in key agricultural policy. It is a known fact that the efficiency of credit facility positively contributes to production base of a sector, especially the Nigerian agricultural sector which is recognised as the heartbeat of the economy by employing over 70% of the country’s labour force; this forms the motivation for this study. This study also deals with the potentials of agricultural output in terms of commercial bank loan to agriculture and agricultural credit scheme as well as their corresponding interest rates to farmers towards increasing agricultural production as the pathway to food industries in Nigeria. The study employed the Autoregressive Distribution Lag (ARDL) econometric approach on the time series data sourced from the Central Bank of Nigeria (CBN) statistical bulletin, Food and Agriculture Organisation (FAO) and the World Development Indicators (WDI) for the period 1998-2018. The result from ARDL showed that commercial banks loan and Agricultural Credit Scheme increased food industries and agricultural output by 8.12% and 0.002% respectively, while population reduces Agricultural Output by 0.001%. Keywords : Agriculture, Bank Credits, Nigeria DOI: 10.7176/JESD/12-12-13 Publication date: June 30 th 2021

DETERMINAN KREDIT BANK UMUM UNTUK SEKTOR PERTANIAN: ANALISIS DARI SISI PERMINTAAN DAN PENAWARAN

This study examines Agricultural Loans Determinants: Analysis from the Supply and Demand Side with the scope of Indonesia starting from 2012 to 2019. This study uses Error Correction Model (ECM) analysis as an estimation method that shows the effect of the independent variable on the dependent variable in the short term. as well as long term. The results of the study show that in the short term, the variables of CAR, NPL and Inflation have a negative effect on Commercial Bank Loans for the Agricultural Sector, while the variables of TPF, Economic Activity and Loan Interest Rates have a positive effect. On the other hand, in the long term, the variables of DPK, Economic Activity and Loan Interest Rates actually have a negative effect and it is the variables of CAR, NPL and Inflation that have a positive effect on Commercial Bank Loans for the Agricultural Sector.

The Bank Specific Determinants of Loan Growth and Stability: Evidence from Indonesia

Introduction/Main Objectives: This study aims to examine the specific determinants of loan growth and the consequences of excessive loan growth on bank stability. Background Problems: Bank loans play an important role in economic growth, but previous studies indicate that excessive loans lead to bank instability. Novelty: This study undertakes a comprehensive analysis, as it will discuss both the loan determinants and excessive loans simultaneously. Research Methods: This study covers more than 89% of the total loans of commercial banks (listed and non-listed banks) between 2002 and 2018 and it employs GMM in order to obtain robust estimations. Finding/Results: The growth of customers’ deposits and gross NPL are the most important factors in explaining loan growth in Indonesia. Banks with excessive loans tend to have high levels of credit risk. Conclusion: Banks’ liquidity and credit risk have important roles in explaining banks’ loans. However, excessive loans could lead to bank instability, particularly for small banks.

Microfinancial inclusion nexus poverty alleviation: the case of Nigeria

PurposeThis research examines the long-run relationship between microfinancial inclusion and poverty alleviation in Nigeria from 1990 to 2018.Design/methodology/approachthe Engle–Granger two-step co-integration and autoregressive distributed lag (ARDL) techniques. Gross domestic product (GDP) per capita proxies poverty reduction. Number of microfinance banks, borrowers of microfinance institutions, commercial bank branches, commercial bank loan to small-scale businesses and broad money supply ratio measure microfinancial inclusion.FindingsThe results indicate a long-run relationship between microfinancial inclusion and poverty reduction. The error correction model reveals that microfinancial inclusion and poverty alleviation converge to long-run equilibrium. The number of microfinance banks, lagged value of borrowed funds and broad money supply negatively influences poverty while the lagged values of number of microfinance banks and broad money supply positively influence poverty.Research limitations/implicationsEffective ways to improve microcredit channels and liquidity flow to the poor through a microfinance bank's intermediation should be promoted by the Central Bank of Nigeria (CBN) using an aggressive policy, which provides access to credit to the poor.Practical implicationsTheoretically, microfinance institutions should increase credit to the poor, especially in rural areas at moderate cost. This study further suggests that many microfinance bank branches should be located in urban and rural areas targeting the poor.Social implicationsMicrofinancial inclusion reduces population's poverty in Nigeria and globally.Originality/valueContrary to other studies, this paper utilizes number of microfinance institutions and borrowers of microfinance institutions to examine the relationship between microfinancial inclusion and poverty alleviation in Nigeria.

Assessing Effects of Capital Adequacy Ratio Requirements on Loan Demand of Kenya Commercial Bank Eldoret Town

Security of investors' reserve remains the significant worry of bank controllers. It is in this regard the capital sufficiency becomes significant and imperative. Capital adequacy is an origination that results from reworking the banks' current capital structure to rebuild the banking industry against the widespread establishment. This research's objective was to assess the effect of capital adequacy ratio requirements on the Bank of Kenya Commercial Bank's loan demand. The study adopted the Capital Buffer Theory. The study reviewed related literature to capital adequacy ratio requirements on the efficiency in the Bank. This study adopted an exploratory research design. The sample population of interest in this study consisted of all 23-bank employees of KCB, Referral Branch. The study adopted a census survey. The following research questions guided the interview. How effective would be capital adequacy ratio requirements on loan demand of Kenya Commercial Bank? The study used interview guides in the collection of data. Qualitative analysis was used to analyze the perception data collected from the key informants. Joint subjects were determined, and qualitative data, organizing, and discussing based on the main objective were done. These were presented using grouped data collected in the form of discussion. From the interviewed respondents, it was found that there might be significant impacts of capital adequacy ratio requirements on loan demand of KCB. The elasticity of loan rate due to capital adequacy ratio requirement might affect loan demand, implying that there would be a change in loan demand for every percentage change in the loan rate. The study recommends that bank regulators be keen on the banks' capital adequacy ratio by laying down financial regulations on liquidity since financial regulation aims to enable banks to improve liquidity and solvency. Stricter regulation may be suitable for bank stability, but not for bank efficiency; restricting banks may lower bank efficiency and increase the probability of a banking crisis. There is a need for capital supplementation to keep up with Capital Adequacy Ratio (CAR) since stricter capital adequacy, robust supervision, and market discipline power promotes technical efficiency. Keywords: Loan, Demand, Ratio, Capital, Bank DOI: 10.7176/RJFA/12-6-06 Publication date: March 31 st 2021

The Case of COVID-19 impact on the level of non-performing loans of conventional commercial banks in Indonesia

This study aims to investigate the impact of COVID-19 on the increase in bad credits at conventional commercial banks in Indonesia. The data used in this study are secondary data sourced from the Ministry of Health and from the Financial Services Authority (OJK), each of which consists of 50 data samples. The data analysis technique used in this study is simple regression analysis to determine the magnitude of the influence of COVID-19 on non-performing loans. The results of the data analysis show that COVID-19 has a significant effect on non-performing loans, and the COVID-19 variable can be used as an external indicator of the increase in non-performing loans for commercial banks in Indonesia. The implication of the research is that other researchers can make COVID-19 an external indicator of an emergency beyond human ability that can affect the level of non-performing loans. For banking, this study can be used as a reference when considering credit risk management policy during the COVID-19 pandemic. AcknowledgmentThe researchers are grateful to University of Sultan Ageng Tirtayasa for financial support. In addition, the authors sincerely apologize for the errors and mistakes found in this paper.

Applying Bayesian method to investigate determinants of non performing loans of banks in Vietnam

This study was conducted to determine the factors affecting non-performing loans of commercial banks in Vietnam for the period 2007 - 2018. The study applies the Bayesian approach and the Random-walk Metropolis-Hastings algorithm to evaluate the impact of micro and macro factors on non-performing loans of commercial banks. The dependent variable is non-performing loans, which is measured by the ratio of non-performing loans divided by total outstanding loans; the independent variables in terms of bank characteristics are non-performing loans of the previous year, profitability, bank size, bak loans, and bank capital; the macro variables are inflation and GDP growth. Research data was collected from financial statements of 30 Vietnamese commercial banks and the General Statistics Office of Vietnam from 2007 to 2018. To increase the reliability and efficiency of the model as well as reasonable Bayes inference, a convergence test of the MCMC chain was performed. The result of this study shows that non-performing loans of the previous year, bank size, bank loan, bank capital, and inflation have positive impacts on bank non-performing loans. In addition, bank profitability and GDP growth rate are factors that have the opposite effects. Based on the research results, the author proposes policy implications for the decision-makers to help banks reduce non-performing loans and promote banks to operate effectively and more efficiently.

Making decisions on issuing sub-federal bonds in Russia: key factors modeling

Recently, Russian regions have been more active in using sub-federal bonds to finance regional debt. However, the Russian sub-federal bonds market’s liquidity is still low while regional authorities often use commercial bank loans to finance the regional budget deficits. The purpose of this study is to identify the key factors influencing the regional authorities’ decisions to issue sub-federal bonds. The impacts of the following factors were assessed: the regional budget deficit volume, the Central Bank key rate, the budget loan proportion of the regional debt, the regional debt burden, average per capita cash income in the region, the employed in the region. We used monthly data for 85 regions (constituent entities of the Russian Federation) for the period 2015–2019.Various regression models for panel data have been developed: those predicting probabilities of a non-zero value of regional bond volume, the volume itself, and combined generalized linear mixed hurdle model with a negative binomial distribution (estimated with glmmTMB contributed package of R). The latter showed non-significant dependence of regional bond volume on region budget surplus, prioritizing unobserved region-specific random factors.

BANK CREDIT IN FINANCIAL PROVISION OF AGRICULTURAL ENTERPRISES

The implementation of strategic tasks of the agrarian sector of Ukraine essentially depends on the financial provision of agricultural producers. In the context of limitation of their own financial resources, budget financing, low development of the financial instruments recognized in the world practice, the loans of commercial banks are an important source of financial resources for agricultural enterprises and small farmers. The use of bank loans positively affects the financial and economic activities of the producers in the agrarian sector due to the opportunity of diversification of sources of financing, growth of investment activity, acceleration of capital turnover, increase of profitability of own capital, etc. Though, there are a number of factors that restrain the bank crediting to the agrarian sector in the modern terms.
 The tendencies of bank crediting in financial provision of agricultural enterprises in Ukraine in 2013-2017 were considered. The changes in the nominal volumes both of bank crediting and real ones were estimated for this period. The comparison of the role of bank crediting to agricultural enterprises in Ukraine with the practice of lending in other countries on the base of the volume of bank loans per hectare of agricultural land, the share of these loans in the value of agricultural product and costs, Agriculture Orientation Index (AOI) for credit, was evaluated. The survey of agricultural enterprises showed a very low debt-to-assets ratio in 2017. Own financial resources of agricultural enterprises have remained the main source of their financial provision. The share of agriculture in total crediting is less than the contribution of the agriculture into the formation of gross value added in the country in recent years. The potential needs of agricultural enterprises in bank crediting were estimated. It was proved that the volume of bank crediting was insufficient for the financial support of operational and investment activity of agricultural enterprises in Ukraine. The necessary conditions for activation of bank crediting to agriculture were determined.

Commercial Bank Loans and the Performance of Small and Medium Scale Enterprises (SMEs) In Nigeria

The contributions of Small and Medium Scale Enterprises (SMEs) to the growth of Nigerian economy cannot be understated as they seem to drive the economic and industrial transformation of the country. Notwithstanding the acknowledged role of SMEs, a number of factors tend to limit their growth potentials. They’re still faced with the issue of funding and to overcome this problem, external borrowing has become inevitable. Commercial banks appear to be the most likely source of funds. Thus, the main objective of this study is to ascertain the impact of commercial bank loans on the performance of small and medium scale enterprises in Nigeria. While an ex-post facto research design was adopted in the investigation; a least square regression analysis was carried out on a time-series data to ascertain relationships, and to avert the emergence of spurious results, unit root tests were conducted. Outcome of the study indicates that, there exists an inverse relationship (though not statistically significant) between the amount of commercial bank loans (CBLSME) made available to SMEs and the output of SMEs (OPSME) in Nigeria This implies that as CBLSME increases, OPSME decreases. The negative sign exhibited by OPSME is not in line with our apriori expectation because an increase in CBLSME is supposed to cause an increase in investment which is expected to boost the output of SMEs. This trend has shown the poor attitude of commercial banks towards the granting of loans to SMEs in Nigeria. The study also revealed that a seeming upsurge in the activities of SMEs may not have reduced the rate of unemployment in Nigeria as a good number of people employed by the SMEs are probably under-employed. Conclusively, the inability of our commercial banks to grant effective loans to SMEs have translated to low level of output of SMEs to GDP. This in turn has impacted negatively on average capacity utilization and a consequent hike in the already strained unemployment situation in Nigeria. While commercial banks are expected to come to the rescue of SMEs, the truth must be said, that these institutions are profit oriented and may not be in a vantage position to give long term loans with depositors funds that are predominantly short tenured. Based on the findings of study, it is recommended that, the intervention programs put in place by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) to ameliorate the challenges of the SMEs should be strengthened. It is not out of place too, for commercial banks to re-jig their SME desks in order to offer sustainable financial assistance to the SMEs. Lastly, the Bank of Industry (BOI) should be properly positioned in its mandate of providing financial assistance for the establishment of large, medium and small projects as well as the expansion, diversification and modernization of existing enterprises and to rehabilitate the ailing ones.

ЗАРУБІЖНИЙ ДОСВІД РЕФІНАНСУВАННЯ КОМЕРЦІЙНИХ БАНКІВ

The article presents a morphological assessment of the concept of "refinancing of commercial banks" based on the legal framework and definitions of well-known world and Ukrainian scientists and economists. There given a definition of the concept of "refinancing" which means that refinancing is a comprehensive system of monetary policy implementation that is conducted in favor of commercial banks for the recovery of bank resources through such instruments as credit auction, bills of exchange, securities collateral. The refinancing policy of the central banks is different in each country but there are some exceptions to its management. The central bank with a change in the interest rate can influence the rates on commercial banks loans, the level of inflation in the country and the exchange rate of the national currency that is to implement monetary policy. Lowering of interest rates entails increased business activity and rising inflation while rising interest rates have seen a decline in business activity, falling inflation and strengthening the national currency. National banks regulate the domestic exchange rate at the interest rate and the economy as a whole. The formation of the refinancing rate by the National Bank of Ukraine requires constant monitoring that is given the economic situation of the state. Foreign experience in forming the refinancing rate and using a successful mechanism is an important element in building an effective banking system. The foreign experience of the refinancing rate formation by the central banks of the world was monitored. Particular attention is paid to the analysis of the dynamics of the refinancing rate of countries such as Japan, the United States, Australia, Great Britain and China. The main priorities that the central bank should be guided by when setting the refinancing rate have been identified. Changes in the discount rate of the National Bank of Ukraine for the last seven years and the factors influencing the decision to change the interest rate are analyzed. The priority tasks to be set by the Government of Ukraine is to stabilize the financial condition of the country have been identified. Ways to improve the mechanism of refinancing of commercial banks in the economic conditions of Ukraine are outlined.

Macro and bank specific determinants of nonperforming loans in polish commercial banks

Macro and bank specific determinants of nonperforming loans in polish commercial banks

Research on Interest Rate Risk of Housing Mortgage Loan Based on Computer Simulation.

In recent years, with the rapid increase of the business volume of housing mortgage loans of commercial banks, the risk of prepayment is increasingly exposed. Prepayment will have a great impact on the duration and convexity of housing mortgage loans of commercial banks and then bring difficulties to the asset liability management of banks. Therefore, empirical research on the changes of duration and convexity of housing mortgage loans caused by prepayment when the market interest rate changes is of great significance for commercial banks to manage interest rate risk exposure. Based on the analysis of the option characteristics of prepayable housing mortgage loan, the CIR model with GARCH(1, 1) is selected to describe the interest rate change path, and the computer simulation method is used to calculate OAS and then calculate the effective duration and effective convexity of housing mortgage loan under different prepayment rates, so as to understand the interest rate risk of housing mortgage loan in the presence of embedded option.

Ідентифікація кваліфікуючих факторів впливу в контексті управління фінансовою стійкістю комерційного банку

The article is aimed at closer defining the theoretical provisions for improving the management of financial stability of a commercial bank and assessing its current state in the context of the impact of destabilizing factors. Scientific approaches to the definition of the category of «financial stability of a commercial bank» are considered, which allows to detail its characteristic features and form a comprehensive idea of the financial stability of a commercial bank as a system category, the timely estimation of benchmarks of which allows minimizing the impact of specific and systematic risks to the economic environment in conditions of high uncertainty. The article systematizes the normative legal acts regulating all potential aspects of the commercial bank's financial stability shift due to changes in the structure of capital, liquidity, solvency, credit risks and being part of the information provision for the analysis of financial stability of a commercial bank. The classification of factors influencing the financial stability of a commercial bank is generalized. The influence of the epidemiological crisis associated with the spread of COVID-19 on key benchmarks of the banking system in terms of assessing the financial stability of the banking institution is examined. The dynamics of changing the proportion of non-performing loans of commercial banks of Ukraine is analyzed, as lending creates the basis for ensuring a balance between temporarily free funds and the amount of resources required at the microlevel of the financial system for sustainable development. Particular attention is paid to the aspects of balance and sustainability of the resource base of the commercial bank, which led to a thorough analysis of the liabilities of the banking system from the position of influencing the financial stability of a commercial bank.