High Non-performing Loans Research Articles

Exploring the nexus between banking stability and market value: Evidence from the Iraqi banking sector

Purpose: This study aims to investigate the relationship between banking stability and market value in the Iraqi banking sector, exploring how the stability of banks impacts their market capitalization. Methodology: The study employs a quantitative approach, utilizing financial ratios such as return on assets, equity/assets, and the z-score index to quantify banking stability. Market value is measured using banks' share prices and outstanding shares. A sample of 17 Iraqi banks is analyzed over a four-year period, employing statistical analysis to examine the relationship between banking stability and market value. Results: The findings reveal a positive relationship between banking stability and market value. Banks with strong risk management practices, adequate capital buffers, and effective regulatory oversight inspire greater confidence among depositors and investors, translating into higher market valuations. Conversely, banks facing poor governance, high non-performing loans, and thin capital cushions struggle to achieve stability, eroding their market value. Theoretical Contribution: The study contributes to the existing literature by providing empirical evidence on the crucial role of banking stability in shaping market valuations. It highlights the importance of sound banking practices, regulatory frameworks, and risk management in enhancing investor confidence and, ultimately, the market value of banks. Practical Implications: The findings offer insights for policymakers, regulators, and financial institutions in Iraq and other regions. Promoting banking stability through enhanced prudential oversight, governance practices, risk management capabilities, and financial inclusion can favorably impact the market valuation and development of the banking system.

Analysis of Factors Affecting the Loan Growth of Banks with a Focus on Non-Performing Loans

The purpose of this paper is to investigate the intertemporal relationship between the non-performing loan ratio and bank lending and to analyze factors affecting loan growth using data from Mongolian commercial banks. There has been a lack of research on Mongolian banks’ lending behavior due to their short history. Thus, this paper investigates the effect of the non-performing loan ratio on total loan growth using an ordinary least squares (OLS) regression model with panel data. We used bank-related variables such as the loan-to-deposit ratio, provision-to-gross loan portfolio ratio, equity-to-asset ratio, and liquidity ratio, and economic variables such as the real gross domestic product (GDP) growth rate, interest rate, and inflation rate. The results of this paper show that non-performing loans have a significant negative impact on total loan growth. The implication of this result is that non-performing loans affect banking efficiency, which, in turn, affects financial stability and the real economy. Moreover, high non-performing loans reduce banks’ profits. Also, this paper found that loss reserve and the liquidity ratio have a positive effect on total loan growth, while the effects of the loan-to-deposit ratio and the equity capital ratio were not found to be significant. Additionally, from a macro perspective, the inflation rate has a positive effect on the total loan growth rate, while the interest rate has a positive effect on total loan growth rather than a negative effect. And real gross domestic product (GDP) growth does not affect the total loan growth rate.

Unveiling the driving forces behind high non-performing loans in zombie enterprises: an executive-centric study

PurposeExcessive borrowing significantly contributes to pushing businesses towards default and their transition into zombie enterprises. Despite government efforts to implement deleveraging policies and guide bank credit flows, it’s essential to delve into the internal dynamics that steer the borrowing behavior of these zombie enterprises at a micro level. To gain a comprehensive understanding of the issue, this study focuses on examining the incentives that drive corporate executives of zombie enterprises to consistently engage in large-scale borrowing from banks.Design/methodology/approachIn this study, panel data analysis is utilized, incorporating firm-, industry- and year-fixed effects. Drawing from data pertaining to listed companies in China spanning from 2007 to 2020, we employ a one-by-one identification method to pinpoint zombie enterprises. Ultimately, a total of 2,533 samples of zombie enterprises were obtained.FindingsThe results indicate that as bank loans to zombie enterprises increase, executive monetary compensation decreases, while on-the-job consumption by executives increases, and they are less likely to be forced into rotation. Mechanism testing reveals that corporate performance partially mediates the relationship between bank loans and executive monetary compensation, but this mediation is ineffective for on-the-job consumption and job rotation. Further investigation suggests that the property rights nature of central enterprises and modified audit opinions can exacerbate the adverse impact of bank loans on the monetary compensation of zombie corporate executives, without significantly affecting on-the-job consumption or job rotation. Conversely, executive power does not enhance the positive effects of bank loans on monetary compensation or on-the-job consumption, but it diminishes the negative impact of bank loans on the forced rotation of zombie executives.Research limitations/implicationsThese results indicate that while bank loans may have a negative impact on corporate value, they function as safeguards for the positions and interests of executives. As a result, bank loans serve as incentives for executives of zombie enterprises.Originality/valueThis study holds theoretical significance as it explores the motivations behind non-performing loans in high-borrowing enterprises, sheds light on corporate governance challenges encountered by zombie enterprises and provides policy insights aimed at addressing the underlying causes of persistent non-performing loans in high-borrowing enterprises, including zombie enterprises.

Influence of Credit Risk Management and Specific Bank Factors on Financial Performance in Publicly Listed Banks

This research is motivated by financial problems which are a period of conflict in the banking or financial sector. Among all the world's continents, Asia is the most crucial continent and contributes 60% of world growth but faces the problem of high non-performing loans (NPL). As is known, a high NPL ratio will weaken the country's economy or financial position. Therefore, the research was conducted in Indonesia. Two credit risk systems are used in this research: NPL and capital adequacy ratio (CAR). Apart from that, this research also includes bank-specific factors to improve financial performance. This research analyzes the relationship between credit risk, bank-specific factors, and FP. The data analysis method used in this research is a quantitative data analysis method, this research is panel data regression using Eviews software. Research results related to NPL (Non-Performing Loans) have no effect on financial performance, Research related to the capital adequacy ratio (CAR) which has no effect on financial performance, Research shows that the cost efficiency ratio (CER) has no effect on financial performance, Research shows that interest rates average loan interest (ALR) has an effect on financial performance, and research shows that the liquidity ratio (LR) has a significant effect on financial performance. The results of this research can help to improve financial performance by paying attention to credit risk management, taking appropriate techniques efficiently in providing loans and looking at liquidity position as a factor.

Unleashing Ghana’s Banking Sector Might: A Comprehensive Analysis of Contributions, Competitiveness, Challenges and Policy Recommendations

This study examines the contributions, competitiveness, and difficulties of Ghana’s banking industry through a thorough analysis of the literature. The sector, which contributes to Ghana’s GDP and supports SMEs and government projects, is beset by challenges such as high non-performing loan rates and expensive borrowing. However, secondary data from sources like the Bank of Ghana and scholarly journals show that the sector has a significant impact on GDP growth, employment creation, and financial inclusion. Through fintech and digital banking, it contributes to financial inclusion as well, despite ongoing obstacles like the digital divide and expensive service fees. The analysis points out important patterns and weaknesses and makes recommendations for strengthening financial inclusion, regulatory frameworks, and credit risk management. It recommends boosting technological innovation, cutting compliance costs, and improving risk management in order to increase competitiveness. Subsequent investigations ought to tackle the dynamically changing banking industry in order to bolster Ghana’s economic expansion and stability.

The impact of home protection schemes on non-performing loans in Greece

This paper explores the determinants of non-performing loans (NPLs) in Greece for the period 2002Q4 to 2018Q2, distinguishing between consumer, housing, and business loans. We contribute to the existing NPL literature by examining the impact of the home protection scheme, which has governed the Greek insolvency framework since the onset of the 2010 crisis. Consistent with previous research on NPLs, our findings indicate that the primary driver for all types of NPL classes has been the business cycle. Additionally, we uncover some evidence suggesting that the initial version of the home protection scheme may have contributed to non-repayment in specific NPL classes as property values declined. However, subsequent amendments to the scheme appear to have played a role in reducing NPL ratios, in addition to the positive effect of improving macroeconomic conditions. Our results offer valuable insights for policymakers seeking to address the burden of high NPL levels on Greece's economic recovery.

Sustainability Reporting and Assets Quality of Listed Deposit Money Banks in Ghana, Kenya and Nigeria

Bank's asset quality deteriorates when banks are exposed to high non-performing loans and associated credit risks. Sustainability reporting deepens the acceptability and understanding of huge opportunities and enhances the corporate competitive advantage of the banks in enhancing banks’ assets quality. This study investigated the effect of sustainability reporting on the assets quality of listed deposit money banks (DMBs) in Ghana, Kenya and Nigeria. The study explored secondary data, using a population of 95 listed DMBs, while a sample size of 31 DMBs was purposively selected for a period of 12 years. Data were extracted from the annual financial records of the banks and sustainability reporting checklist in line with the Global Reporting Initiative. The validity and reliability of the data were premised on the statutory audit of the financial statements. Descriptive and inferential (multiple regression) statistics were used to analyze the data at a 5% significant level. The study found that sustainability reporting significantly affected the assets quality of the listed deposit money banks in Ghana, Kenya and Nigeria (Adj R2 = 0.47, Wald-test (4, 367) = 342.18, p < 0.05). Based on the finding, the study recommended managers of the banks should exhibit high professional competence, and exercise managerial expertise and ethical practices in compliance with sustainability reporting best corporate best practices capable of enhancing the assets quality of the banks.

Behavioral Accounting Review For Non-Performing Customer Reporting : Case Baitul Maal Wattamwil

The challenge of BMT development is the elevated Non-Performing Financing (NPF) level. This study aims to investigate how BMT addresses this NPF challenge by utilizing interview techniques and conducting content analysis through qualitative methods, all from a behavioral accounting perspective. The specific BMT under examination operates within the West Java region. The research findings reveal that measures have been taken to prevent the occurrence of high Non-Performing Loans (NPLs), and the roles played by BMT's management and accountants in reporting have been instrumental, particularly in decision-making. The NPF Customer reporting is a form of BMT management responsibility to stakeholders. An intriguing discovery is that BMT must effectively leverage its social functions to mitigate the risk of high NPF.

An Analysis of Non-Performing Loans in Kenya

Kenya has historically recorded elevated levels of non-performing loans (NPLs) in the banking sector. The average NPLs ratio per year exceeded nine percent since 2010. The ratio has been particularly elevated in the last five years, averaging 13.23 percent per annum. Except for Ghana, Kenya’s NPLs as a percent of gross loans has been way above those of its peers in the last three years. The NPLs problem in the country cuts across all sectors of the economy and commercial banks irrespective of size or ownership. The concentration of NPLs was persistently high in Trade, Real Estate, Manufacturing, and Personal and Household sectors during the whole period under review, 2010-2021. The sectors with concentration of NPLs were the same sectors with concentration of sectoral distribution of loans by value and number of loan accounts. This calls for close monitoring of these four sectors by the regulatory authority to ensure that banks make adequate provisions for the loans in these sectors and abide by supervisory and regulatory requirements to mitigate risk of default. Delayed payments from private and public sectors was found to be one of the main contributors to the high NPL percentages. In 2012, the high interest rate regime impacted the quality of loans and advances negatively, thus contributing to high default rates. The high NPLs levels in the Real Estate and Trade sectors have been attributed to slow uptake of housing units and challenges in the business environment, respectively. Apart from the Central Bank’s Prudential Guidelines, there are no common strategies that commercial banks are required to apply to help manage stocks and flows of NPLs. While different commercial banks manage the NPLs problem internally, the commercial banks in the country do not have dedicated in-house NPLs units. To reduce the NPLs problem in the country, commercial banks should employ new innovative ways of managing NPLs stock and flows like setting up separate dedicated in-house NPLs units; the Central Bank should pay particular attention to the provisions that are often violated (in particular, capital adequacy requirement, single obligor limit and prohibited business) and come up with specific actions to effectively enforce compliance; and the public sector should make a concerted effort to reduce pending payments to the business community. Keywords: Non-performing loans, gross loans, supervisory and regulatory compliance, credit risk DOI: 10.7176/JESD/14-8-01 Publication date: April 30 th 2023

Factors Affecting Repayment Behaviour in Islamic Microfinance Programs

This study is primarily concerned with borrower behaviour in the context of microfinance financing repayment. The high non-performing loans (NPLs) incurred by microfinance institutions are one of the contributing factors to the failure to achieve the objective of poverty alleviation. This study used the quantitative approach, and structured questionnaires were distributed among respondents in Peninsular Malaysia who were selected via multistage random sampling. The results of the analysis showed that borrowers’ repayment behaviour was affected by their characteristics and accountability. Moreover, religiosity and business performance did not have a significant direct relationship with repayment behaviour. This research also found that accountability played a significant positive role as a mediator between borrower characteristics and repayment behaviour. This study makes a significant contribution to the knowledge of microfinance programmes, in which it explains repayment performance plays an important role in order to improve the social economy and alleviate poverty. The result also contributed to the practical aspect by suggesting ways to improve service and screening approaches to identify early warning signs and some factors that are potentially related to borrower behaviour.

Determinants of Non-Performing Loans of Public Commercial Banks

The study aimed to examine the effect of profitability on non-performing loans of the Nepalese Commercial Banks. To meet the study’s objectives, three public commercial banks' non-performing loans (NPL) were analyzed using a research methodology that included descriptive and causal comparison methods. The study used a purposive sampling design to select three public commercial banks from 21 populations and used secondary data for the fiscal years 2012/13 to 2021/22. As an alternative data collection technique, the study has 30 observations from the population. This research indicates that remittance and return on equity are significantly associated with non-performing loans. Likewise, remittances negatively influence the NPL of public banks in Nepal, whereas ROE has a favorable effect. NPL was unaffected by GDP, inflation, or ROA to any substantial degree. Researching foreign direct investment and the balance of payments is recommended. Financial institutions should refrain from distributing further credit if they operate under a higher NPL.

Impact of Industry-Specific and Macroeconomic Factors on Non-Performing Loans of Licensed Banks in Sri Lanka

This study aims to examine the factors affecting to non-performing loans (NPLs) covering 30 licensed banks (LBs) in Sri Lanka. The selected variables affecting to NPLs considered as industry-specific and macroeconomic variables which can easily identify the internal and external influenced to the position of NPLs of LBs. The study covers the data from 2000 to 2019 exploring autoregressive distributed lag model and checking the robustness of the results using Vector Error Correction Model. The test results revealed that both industry-specific and macroeconomic variables significantly influenced on NPLs in LBs in Sri Lanka. Some industry-specific factors such as loan growth of LBs, net operating profits and deposit rates show the significant positive relationship with NPLs. Among the macroeconomic factors, gross domestic product and unemployment rate had a negative effect on NPLs. However, domestic credit and exchange rate included into macroeconomic variables revealed that positive relationship with NPLs in LBs. The study recommends when releasing loans to businesses including micro, small and medium scale enterprises, need more concentrate about both industry specific and macroeconomic factors due to main constraint of a LB is NPL which may increase or decrease at any time. The findings of this study may use for casting and measuring of NPLs in the future scenarios and to take decisions on all financial sector related industries in Sri Lanka. The research recommends further to maintain higher level of provisions for bad loans if high NPLs are observed in the books of accounts in LBs.

An Examination of Bangladesh’s Current Situation with Regard to Non- Performing Loans (NPLs) and Its Effect on the Banking Sector

The purpose of this article is to investigate the extent of non-performing loans (also known as "NPLs") in Bangladesh's banking sector. Non-performing loans (NPLs) with systemic levels require a complex and expensive resolution process. In structurally weak financial systems, bank NPL issues typically appear following credit booms or extended periods of slow growth. New lending is stifled by NPLs, which harms banks' capacity to make money and stay solvent. The financial system ceases to operate regularly when high NPL levels affect a sufficient number of banks, and banks are unable to continue lending to the economy. Market dysfunction and bank coordination issues may prevent a quick recovery. Authorities typically intervene in such situations to take control of the crisis response. They can use a range of resolution tools for this purpose, but they normally demand a lot of resources and take some time to produce results. Non-performing loans are one of the primary issues that commercial banks are currently dealing with. What exactly is a non-performing loan? Financial assets known as nonperforming loans (or "NPLs") are those from which banks no longer receive interest or installment payments on time. Since the loan no longer "performs," or brings in money for the bank, it is known as non-performing (Choudhury at al .2002). Keywords: Non-Performing Loans (NPLs), Commercial Bank, Financial System, Loan Recovery Measures, Bangladesh. DOI: 10.7176/EJBM/14-22-01 Publication date: November 30 th 2022

Access to Finance: The Determinants and Limitations to the Supply Side of Finance for Liberia’s Rural Market

This critical piece of research paper reviews the literature on the key determinants of finance for Liberia’s rural market. It also takes into account the limitations of the supply of finance for the rural market of Liberia, with the unabated need for the diversification of the Liberian economy in the face of intermittent shocks in the global economy. The study unearthed that investment in agricultural small and medium-sized enterprises (SMEs) will prove adequate in triggering sustainable economic growth and development through poverty alleviation, job creation, and food security which are the drivers of the supply of finance for rural dwellers in Liberia. Notwithstanding, the study found that the supply of finance for Liberian agricultural SMEs is constrained by the lack of creditworthiness information, weak judicial enforcement of contracts and corporate transparency, land ownership, high non-performing loans, and financial literacy. The keywords used in this article include gross domestic product, small and medium-sized enterprises, non-performing loans, inflation, credit rating, bankruptcy, value chain, urbanization, food security, human capital, and risk aversion. Keywords: Bankruptcy, Credit rating, Human capital, Inflation, Small and medium-sized enterprises, Value chain.

NON-PERFORMING LOANS, MACROECONOMIC AND BANK-SPECIFIC VARIABLES IN SOUTHEAST ASIA DURING COVID-19 PANDEMIC

This study examines the relationship between bank-specific variables, macroeconomic variables and non-performing loans (NPLs) in the seven countries of Southeast Asia (Cambodia, Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam) during the pre-COVID-19[Formula: see text]and COVID-19 pandemic. This study adopts panel data regression and distributed lagged regression to examine the impact of bank-specific variables and macroeconomic variables as NPL determinants. The results show that bank-specific variables significantly correlate to NPL, but limited evidence indicates the influence of macroeconomic variables during pre-COVID. Nonetheless, macroeconomic variables are significant to NPL with the emergence of the pandemic, while the bank-specific variables are found to be insignificant. It shows that macroeconomic variables have a greater impact during the turbulent period as they affect most businesses, especially during the pandemic. Furthermore, macroeconomic variables are observed to have a stronger influence on developed countries, but the impact of bank-specific variables is stronger in emerging countries. The results of this study assist policymakers, regulators, banks and governments in identifying the determinants of high NPL as the indicator of a financial crisis. Greater emphasis shall be given to the changes in macroeconomic variables.

Banking Crisis in Ghana: Major Causes

The concept of banking crises is a global phenomenon and many nations of the world has suffered one or more banking crises. The economy of Ghana in recent times has been greatly shaken due to the banking crises that has overwhelmed it’s banking sector. Over the past decade, Ghana has been hit by diverse banking crisis that has seen some banks and savings and loans institutions being collapsed with many others also being consolidated. This paper outlines the main causes of the banking crises that occurred in Ghana, such as poor corporate governance and high non-performing loans. The study revealed that the banking crisis that Ghana suffered recently could very well be avoided if the regulatory body – Bank of Ghana performed its duties effectively and efficiently. From the study, it can be concluded that if the “banks in question” practiced a well vexed internal control system – the crisis could have been averted or reduced to the barest minimum.

Impact of COVID-19 on Financial Performance and Profitability of Banking Sector in Special Reference to Private Commercial Banks: Empirical Evidence from Bangladesh

The current crisis caused by the COVID-19 pandemic has hit the global economy hard, causing significant damage to every aspect of the global banking system, and Bangladesh is no exception. For that reason, its performance and profitability have been affected. In this study, we investigate the impact of COVID-19 on the financial performance and profitability of the listed private commercial banks in Bangladesh. We initially compute each bank’s financial performance index (FPI) to determine the position according to their financial performance individually before and the current period of COVID-19 by the standardized CAMELS rating system. After assessing the position, the fixed-effect regression model is used to explore the impact of the bank’s specific variables and macroeconomic variables along with the banks’ variables on the banks’ profitability. The banks that performed better during the pre-pandemic period of COVID-19 also performed better during the pandemic period of COVID-19. The performance of AIBL, EBL, and BBL was almost autonomously higher during both periods. In the case of bank profitability, our paper discovered that during the pandemic period of COVID-19, high non-performing loan rates, holding more liquid assets, a high amount of hedging capital, and inappropriate bank size lessened the banks’ profitability. In contrast, a low leverage position and inflation rate enhanced the bank’s profitability during this period. The outcome of this study will help bank authorities detect the loopholes and take preventive measures that can improve their profitability during a crisis period like COVID-19. The investors and depositors who invest money in banks can precisely decide their portfolios.

The Impact of Non-performing Loans on Nigerian Economic Growth, 2011-2020

This paper examined the impact of rising non-performing loans (NPL) on Nigeria's economic growth using time series data from 2011 – to 2020. In analyzing this relationship, the co-integrated autoregressive distributed lag (ARDL) model was employed, and the study revealed a long-run negative relationship between NPL and economic growth. This suggests that a higher NPL may have reduced the banks' loan disbursement capacity or made the banks reluctant to give out more loans to the productive sector, adversely affecting the economy. This research also supports the long-standing results of a positive relationship between money supply and economic growth. It further revealed a positive relationship between government expenditure and economic growth in Nigeria. Therefore, the study recommended that Nigeria's financial management team activities include a dedicated watch on the rising NPL in the banking industry. Furthermore, monitoring NPL should no longer be viewed as the sole responsibility of the CBN but that of all managers of the Nigerian economy.

Bank non-performing loans in the fintech era

This study investigates the behaviour of bank non-performing loans in the fintech era. Using data from 35 developed countries from 1998 to 2016, the findings show that non-performing loans are fewer in the second wave of the fintech era. Also, bank non-performing loans are positively related to the state of the business cycle in the second wave fintech era. Countries that have high supply of credit to the private sector experience high non-performing loans in the second wave fintech era. The two-way interaction analysis shows that non-performing loans are lower during times of economic boom and when there is higher credit supply in the second-wave fintech era.

Republic of Fiji: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Fiji

Fiji has been among the hardest hit by the pandemic—with infection rates at one point among the highest in the world. Despite swift action by the government to close borders, protect the population, and mitigate the worst economic effects, the economic contraction was the worst in Fiji’s history. The crisis has come at a heavy social cost, including large-scale layoffs, surging unemployment, and high non-performing loans. Multilateral and bilateral support has been critical in helping Fiji weather the worst of the crisis and has facilitated a strong government response—including rapid acceleration of the government vaccination program underpinning Fiji’s reopening to international tourism.