Determinants Of Non-performing Loans Research Articles

Determinants of Non-Performing Loans with External Audit as a Moderation Variable

Determinants of Non-Performing Loans with External Audit as a Moderation Variable

Effects of Economic Uncertainty on the Asset Quality of Banking Sector: Evidence from a Developing Country

ABSTRACT: Extant literature investigates on the determinants of NPL (non-performing loan) many a time, however, little is known on the relationship between economic uncertainty and NPL for any developing country. Historically, Bangladesh is suffering from high level of NPL in the banking sector. In addition to that, Bangladesh observes high level of macroeconomic uncertainty as characterized by high and volatile Gross Domestic Products and inflation, continuous exchange rate devaluations, and shallow financial markets. Motivated by this, we investigate the nexus between economic uncertainty and NPL for Bangladesh. Based on the data availability, we use the annual dataset covering 1990–2018. Furthermore, we use autoregressive distributed lag (ARDL) model considering its benefit accommodating both I(0) and I(1) variables. The empirical results show that there is positive relationship between economic uncertainty and NPL in the long run. The results are robust to the alternative measures of economic uncertainty and specifications. Consistent with the expectation, financial development carries a negative sign on the asset quality albeit the effect of economic uncertainty is actually pronounced (both the size and significance changes) in the augmented models. Key policy implication of this study is that government should formulate well anchored, rule-based policies to reduce inflation and interest related uncertainties. With a rule-based policy (for example, inflation targeting), people believe that central bank can achieve its targets. Government should adopt floating exchange rate regime that will adjust the external shocks well via exchange rates. In addition to this, government can monitor, and regulate stock market so that uncertainty in stock market is reduced. Finally, monetary and fiscal policies should be communicated well to the people. Thus, it is possible to reduce asymmetric information among the people, which may reduce economic uncertainty, and thus reduce NPL.

Determinants of Non-performing Loans in Non-Bank Financial Institutions: Evidence from Sri Lanka

This study investigates the factors affecting non-performing loans of non-bank financial institutions in Sri Lanka, employing a panel regression model on data from ten firms from 2011 to 2020. The sample comprises five licensed finance companies and five specialized leasing companies, accounting for 65 percent of the NBFIs industry. The regression model includes profitability, operating efficiency, capital adequacy, company size, GDP growth, inflation, and interest rates as explanatory variables. The results show that capital adequacy and interest rates are positively related, and GDP growth and inflation are negatively related with non-performing loans. Further, it was found that firm size, profitability, and efficiency do not have a significant relationship with NPLs. These findings underscore the important influence of the firm’s capital ratio and macroeconomic factors on non-performing loans of non-bank financial institutions in Sri Lanka.

Determinants of non-performing loans: An explainable ensemble and deep neural network approach

Ensemble algorithms can learn complex nonlinear relationships in large datasets resulting in higher predictive accuracies than the conventional methods. Practitioners and regulators have shown substantial hesitance in adopting them in credit risk management because of their need for explainablity. Using five ensemble learning techniques and a one-dimensional convolutional neural network, we assess indicators to predict asset quality deterioration in a consumer loan dataset using the SHAP framework to achieve explainablity of the models' ranking of features significance. We implemented a novel model-agnostic aggregate ranking method to rank the importance of the overall features from each model in predicting NPLs.

The Influence of Bank Performance, Market Condition and Economic Growth on Non-Performing Loans

The paper contributes to the literature on the determinants of non-performing loans by applying panel fixed effects and dynamic Generalised Method of Moments (GMM) estimations to a relatively large panel of 80 countries over the period 1999-2017. The paper considers three categories of explanatory variables; bank-level, industry-level, and macroeconomic-level. The bank-level variables highlight the relevance of bank profitability and efficiency to avoid non-performing loans. The industry-level variables, for the entire period and particularly after the onset of the Global Financial Crisis (years 2009-2017), show that bank market concentration promoted non-performing loans, while bank market competition and bank stability did not contribute to increasing non-performing loans. The macroeconomic-level variable, real per capita gross domestic product, provides very convincing evidence that promoting economic growth looks like the best way to avoid non-performing loans. Analyses with different sub-samples show that the determinants of non-performing loans are not particularly dependent on the level of income of the country.

Determinants of non-performing loans in Regional Development Banks (BPD) in Indonesia

The country's macroeconomic conditions, whether directly and indirectly will influence the development of the financial and banking sector. This study aims to determine the effect of macroeconomic and internal company variables consisting of BOPO, ROA, money supply, and the unemployment rate on non-performing loans (NPL) in Indonesian banking, especially Regional Development Banks (BPD). The sampling technique used is purposive sampling technique. There are 20 Regional Development Banks (BPD) that met the requirements determined by the observation period from 2008-2021. The data processing method used is panel data regression. Model selection uses the Chow test, Hausman test and Langgrange Multiplier test (LM Test). Based on this, the appropriate model is the Fixed Effect Model (FEM). Testing the classical assumptions of FEM shows that there is a heteroscedasticity problem, then it is recovered using the Feasible Generalized Least Square (FGLS). The results of the analysis show that the variables BOPO, ROA, money supply, and unemployment rates both simultaneously and individually have a significant positive effect on the NPL of Regional Development Banks.

Non-Performing Loans as a Driver of Banking Distress: A Systematic Literature Review

The main purpose of this paper is to present a systematic literature review of studies on the determinants of non-performing loans (NPLs) published over the period 1987–2022. This paper reviewed 76 studies in 58 peer-reviewed journals. The provocation for this analysis is that the issue of NPLs is attributed to close attention from policymakers and is currently addressed with various measures. The authors synthesize the literature according to the following main boards: macroeconomic factors, bank-specific factors, and industry factors. This study tries to construct the main findings from the numerous studies that are performed concerning NPLs and their determinants. The authors’ motivation is to provide a detailed perspective on NPLs. Hence, this study provides a complete and coherent framework for the researchers to examine the varied NPL literature.

Determinants of Non-Performing Loans (NPLS) of The Commercial Banks in Bangladesh: An Application of Camel Model

The loan portfolio represents a significant portion of a bank’s total assets. This asset generates interest income, which is a measurement of bank’s financial performance and stability. Non-performing loans (NPLs) are those loans that default on paying interest or principal. Hence, NPL ratio is one of the important indicators of a bank’s performance. In order to ensure good performance, a thorough understanding of NPL ratios and factors that affect NPL are necessary. This research evaluates NPL ratio in the Banking sector of Bangladesh and the relationship among the variables of CAMEL (capital, asset, management, earnings and liquidity) model of performance. Last 24 years (1997-2020) time series data of banking sector have been used in this study. Upon analysis of the time series data VECM model is developed to demonstrate the relationship among the variables. The developed model shows high goodness of fit and reasonable explanatory power. Results of the study will help practitioners and regulators to pin-point policies and operational interventions to manage (reduce) NPL. Social Science Review, Vol. 38(2), December 2021 Page 71-89

Determinants of Non-Performing Loans Between Islamic And Conventional Banks: A Systematic Literature Review

This article conducts a systematic literature review of 52 papers on the determinants of non-performing loans (NPL) published for 2006-2022 in peer-reviewed journals. This paper adds to the development of this emerging field of systematic review in non-medical field settings by mapping existing research to inform future research exploits. This study synthesizes NPL studies by applying the systematic review methodology. The data synthesis is done through first and second-level codes. The first level codes group studies according to bank-specific, borrower-specific and comparative (Islamic vs conventional bank types). The literature is conscientiously analyzed through 13 subcategories using an open coding process. The literature synthesis shows that borrower-specific factors that may determine NPL include borrower profile, internal factors, external factors, and social issues. Also, the bank-specific factors that may influence NPL growth include economic conditions, management competence, profit maximization, and information economics. The findings highlight that the way borrower profiles, banks-specific factors and macroeconomic factors interact to influence NPL still needs more understanding. Further, Islamic banks and conventional banks seem to behave similarly regarding many bank-specific and macroeconomic factors even though the profit and loss sharing contract used in Islamic banks was deemed to moderate NPL positively. But the borrower-specific factors' interaction with bank-specific and macroeconomic factors of Islamic banks clients remains unclear. This highlights an important research gap in understanding the behavior of Islamic bank borrowers towards NPL prediction.

Determinants of Non-Performing Loans and Non-Performing Financing level: Evidence in Indonesia 2008-2021

Banking stability plays an important role as an intermediary in the economy. Both the economy and the banking sector affect each other. This study aims to investigate the effect and response of external variables and internal bank variables on Non-Performing Loans at Conventional Commercial Banks and Non-Performing Financing at Islamic Commercial Banks. This study uses macroeconomic variables such as economic growth and inflation, while a bank’s internal variables include the Loan to Deposit Ratio, Financing to Deposit Ratio, and Capital Buffer. This study employs Vector Autoregressive Regression (VAR) to examine the time series data. The results showed that the variable Economic Growth at lag-1, Loan to Deposit Ratio at lag-1, and Capital Buffer at lag-2 significantly affect Non-Performing Loans. While the variable that has a significant effect on Non-Performing Financing is only Economic Growth at lag-1. In addition, as can be seen from the Impulse Response Function curve, Non-Performing Financing tends to be more stable toward shocks from the variables used than Non-Performing Loans. The findings suggest that banks are encouraged to be more selective in loan disbursement and maintain minimal capital adequacy by taking into account the principle of prudence and referring to the bank’s health criteria.

DETERMINANTS OF NON-PERFORMING LOANS IN THE NIGERIA BANKING INDUSTRY

This study examined the determinants of non-performing loans (NPLs) in the Nigeria banking industry between the periods of 2011-2020. The specific objective of the study is to examine the relationship between the measures of bank specific variables [Bank Size (BS), Capital Adequacy (CA), Profitability (PROF), Bank Age (BA), Liquidity (LIQ) and Loan to Total Assets (LTA)] and [NPLs proxy with Non Performing Loans Ratio (NPLR)] in Nigeria. The focus on the banks in Nigeria listed in the Nigeria Stock Exchange and the difficulty in assessing their annual reports and account of 10 banks were drawn out of the 18 deposit money banks (DMBs) for the study. The data for the study was gotten from the annual reports and accounts of the ten (10) banks on the basis of the variables under study and the data was analyzed using descriptive statistics, correlation and multiple regression analysis. The findings revealed that BS, CA and BA have significant effect on NPLR but the effect of BS and BA on NPR are negative while PROF have negative insignificant effect on NPLR of DMBs in Nigeria. This research found that determinants of NPLs have mix effect on NPLR in Nigeria. The findings suggested that BS in relation to total assets should put in consideration when granting loans and also, the DMBs in Nigeria should maintain and implement the capital adequacy policy enacted by the CBN.
 Keywords: Non-Performing Loans, Bank Size, Capital Adequacy, Profitability, Bank Age, and Liquidity.

Determinants of Non-performing Loans: A Panel Data Approach

This paper considers a panel of 80 countries across all continents, over the period 1999–2019, and uses panel generalized method of moments system estimations with data from the World Bank Global Financial Development database, to explain the evolution of the bank non-performing-loans-to-total-loans ratio. The results obtained provide clear evidence that banks with high profitability, benefiting from market stability and located in countries with increasing economic growth are not expected to have high values of the non-performing-loans-to-total-loans ratio. On the other hand, high values of this ratio are robustly associated with an increase of the bank-cost-to-income ratio, market concentration, and bank regulation. The paper also contributes to the literature by assessing the relevance of the level of each country’s income and economic integration. Overall, the results obtained reveal few differences between high-income and non-high-income countries and between Organization for Economic Cooperation and Development (OECD) countries and non-OECD countries. However, considering only the years after the onset of the global financial crisis (2009–2019), there is robust evidence that bank regulation contributed to a decrease in the non-performing-loans-to-total-loans ratio, but only in non-high-income countries and non-OECD countries. Finally, the results for all considered panels, clearly show that the promotion of economic growth is always the best way to assure a decrease in the non-performing-loans-to-total-loans ratio, reducing the likelihood of banking losses as well as potential financial crisis.

Determinants of nonperforming loans after recapitalization in the Nigerian banking industry: Does competition matter?

AbstractThis paper examines the effect of competition on nonperforming loans in the Nigerian banking industry between 2011 and 2018 using the system generalized method of moments. The findings establish the competition‐stability hypothesis in the Nigerian context. The interaction between competition and bank size/capitalization has a positive and significant effect on nonperforming loans. These results showed that low competition increased nonperforming loans in the Nigerian banking industry while bank size and capitalization enhanced competition to increase nonperforming loans. Also, bank size/capitalization are complementary for addressing nonperforming loans. The paper recommends that the Central Bank of Nigeria (CBN) regulates the market power of the five largest banks in the industry to address the adverse effects of competition on mounting nonperforming loans in the Nigerian banking industry.

Determinants of Non-Performing Loans(NPLs):

The study was conducted to explore the determining factors of non-performing loans of the private commercial banks in Bangladesh. A panel dataset, along with a fixed effect model, was used. Consistent with empirical evidence, it has been found that an increase in GDP exerts a substantial adverse outcome on NPLs, indicating that it generally transforms into more revenue which in turn contributes to lesser NPLs. This research shows a significant negative relationship between the bank’s size and the state of NPLs. We have also found that large banks are not necessarily more efficient in scrutinizing loan customers compared to smaller banks. The empirical results show that higher-term loans stimulate higher NPLs. This article denotes a significant negative relationship between credit growth and NPLs, indicating the conservative lending procedure adopted by private commercial banks. Therefore, commercial banks with higher credit growth are likely to have lower non-performing loans. However, our evidence does not support the positive correlation between NPLs and the ratio of loans to an asset that apprehends the adversity of banks

Determinants of Non-Performing Loans(NPLs):

The study was conducted to explore the determining factors of non-performing loans of the private commercial banks in Bangladesh. A panel dataset, along with a fixed effect model, was used. Consistent with empirical evidence, it has been found that an increase in GDP exerts a substantial adverse outcome on NPLs, indicating that it generally transforms into more revenue which in turn contributes to lesser NPLs. This research shows a significant negative relationship between the bank’s size and the state of NPLs. We have also found that large banks are not necessarily more efficient in scrutinizing loan customers compared to smaller banks. The empirical results show that higher-term loans stimulate higher NPLs. This article denotes a significant negative relationship between credit growth and NPLs, indicating the conservative lending procedure adopted by private commercial banks. Therefore, commercial banks with higher credit growth are likely to have lower non-performing loans. However, our evidence does not support the positive correlation between NPLs and the ratio of loans to an asset that apprehends the adversity of banks

Banking Supervision and Nonperforming Loans in Africa: Does Institutional Quality Matter in the Ghanaian Banking Space?

ABSTRACT In this paper, we reexamine the determinants of nonperforming loans through the impact of supervisory devices in credit risk management in Africa. The paper employs bank-specific, macroeconomic and institutional data for a panel of 14 universal banks over the period 2009 to 2020. We develop models that capture the role of regulatory supervision on credit risk. Findings from the Panels Corrected Standard Errors (PCSE) and the system GMM shows that previous year’s NPL and inflation significantly affect NPLs in the banking space of Gana. Bank size and financial development are inversely associated with NPLs. The interactive term of regulatory quality and government effectiveness on NPLs has net negative effect. This suggest that regulatory quality enhances the reductive effects of government effectiveness on NPLs. Our findings in general lends credence to the financial instability theory as NPLs in the Ghanaian context has been the outcome of activities of speculative borrowers.

The Macroeconomic Determinants of Non-Performing Loans in Bangladesh: An Empirical Analysis

Bank plays intermediary role which is very important for the development of any nation that can be affected by the non-performing loan. This study investigated the macroeconomic determinants of non-performing loans in Bangladesh using the time series data from 1990 to 2020 collected from Bangladesh Bank, Bangladesh bureau of statistics, World Bank, International Monetary Fund (IMF) data on World economic outlook and International Labour Organization (ILO) Statistics. The time series is chosen from 1990 to 2020 because of expansion of private commercial banks and availability of data of gross loans and amount of Non-performing loan amounts. The dependent variable considered in this study was percentage of non-performing loan to gross loan (NPL) and the independent variables were gross domestic product growth rate (GDPGR), inflation (INF), lending rate (LR), exchange rate (ER), money supply to gross domestic product (M2GDP) and unemployment rate (UR). NPL was positively influenced by GDPGR, LR and ER and negatively influenced by INF, M2GDP and UR. The government should direct its monetary and fiscal policies towards reducing Non-Performing Loans by creating an environment for business growth for the provision of social and infrastructural facilities.

The Determinants of Non-Performing Loans in the Indonesian Banking Industry: An Asymmetric Approach Before and During the Pandemic Crisis

The outbreak has created an unprecedented crisis that influences macroeconomic variables. These circumstances are predicted to be contagious for banking performance. To understand the related influences, this study attempts to examine the asymmetric relationship between macroeconomic variables and non-performing loans/financing of the Indonesian banking industry before and during the COVID-19 pandemic. The nonlinear autoregressive distributed lag (NARDL) is adopted based on the time-series data from 2005Q1 to 2021Q1. The study provides evidence that an asymmetric relationship between macroeconomic variables and the banks’ non-performing loans/financing exists both before and during the pandemic. In addition, asymmetric relationships of macroeconomic variables on Islamic banks are more prominent before the pandemic even though it occurs inversely during the pandemic. As for policy implication, the financial authority needs to be prudent in implementing financial policies due to the presence of an asymmetric relationship between macroeconomic variables and the banks’ non-performing loans/financing. Moreover, the authority must ensure that all financial policies will be effective to all types of banks regardless of conventional or Islamic banks.

Determinants of Non-Performing Loans: Banking Sector Listed in Indonesia Stock Exchange

This study proposes to obtain empirical evidence whether profitability has a negative effect on non-performing loans, whether income diversification has a positive effect on non-performing loans, whether bank capital has a negative effect on non-performing loans, and whether bank liquidity has a negative effect on non-performing loans. The sample used in this research are 28 banking companies listed on the Indonesia Stock Exchange during the 2017-2019 period. Sampling was carried out using purposive sampling technique and data were processed using Eviews 10 software. The results indicate that profitability has a negative effect on non-performing loans, income diversification has a positive effect on non-performing loans, bank capital has no negative effect on non-performing loans, and bank liquidity has no negative effect on non-performing loans.

Determinants of Non-Performing Loans (NPLs); Evidence from Banking Sector of Pakistan

The main aim of the current study is to theorize an inclusive assessment of the factors of non-performing loans from banking sector in the setting of Pakistan. In this connection, adequate criticism of contemporary literature is being provided in context of relevant macroeconomic indicators which might aggravate the level of Non-Performing Loans (NPLs) in the conventional commercial banks of Pakistan as well as other regions. As per the study of literature, it has been found that corruption, political stability, accountability, investment profile, credit bank to private area and energy crisis affects the NPLs of conventional banks. In addition, factors like lending interest rate, unemployment, GDP and inflation do explain the variation in NPLs of the banking sector. Political stability, lack of capital capability, lack of efficiency, nominal emphasis on NPLs and lack of efficiency are the present issues being faced by the country. On the other hand, an increase in NPLs affects the internal factors including efficiency, profitability, bank size and capital. It has also been found that NPLs surge through inaccurate decisions by the organizations and political intervention in the banking sector. As per the outcomes of the studies, it has been observed that operational productivity and effectiveness have an adverse and significant relationship with NPLs. The lawmakers should accomplish a vigorous financial state of banks through manufacturing extra revenues. In this way banks will be in a better position to explore the credit worthiness of the creditors which will be ultimately helpful for better loan management. Once the key factors for increase in NPLs are determined, the banks will establish stable and efficient policies for loan management. The purpose behind determining these internal as well as external factors is not mere to highlight their significance but to chalk out measures and directions to control the stability of banking sector and the financial structure.