High Non-performing Loans Research Articles

أثر بعض المتغيرات الاقتصادية على الاستقرار المالي في العراق: دراسة تطبيقية على نسبة القروض المتعثرة إلى إجمالي الائتمان للمدة (2016-2024)

This study aimed to examine the impact of certain economic variables on the ratio of non-performing loans (NPLs) in Iraq. The NPL ratio to total credit is considered a key indicator of financial and banking stability and one of the most prominent global measures of banking asset quality and the strength of the financial system. A high NPL ratio indicates increased financial risks as it reduces bank profitability and liquidity, undermining investor and depositor confidence, which ultimately negatively impacts the country’s macroeconomy. The study utilized quarterly data spanning the period 2016–2024 and applied the Autoregressive Distributed Lag (ARDL) model to analyze the short- and long-term relationships between the variables. The findings revealed that an improvement in the parallel exchange rate and economic growth rate reduces the NPL ratio, while an increase in public debt and inflation rate raises it. This underscores the need for decision-makers to adopt more realistic and effective fiscal and monetary policies to enhance banking sector stability and achieve sustainable economic growth.

Exploring the Role of Bank-Specific Factors in Nonperforming Loans: A Study of Islamic Banks in Bangladesh

Nonperforming loans (NPLs) have posed a significant challenge to the banking sector in Bangladesh for decades, particularly within Islamic banks, where little research has been conducted to assess the relationship between agency costs and nonperforming loans. This study explores the role of agency costs and other bank-specific factors in determining nonperforming loans (NPLs) in Islamic banks in Bangladesh. This study employs pooled ordinary least squares (OLS) regression with panel data from Q1 2013-14 to Q4 2023-24 to analyze the relationship between the cost-to-income ratio (as a proxy for agency costs), return on assets (ROA), loan-to-deposit ratio (LDR), capital adequacy ratio (CAR), and NPL ratios. The study confirms that agency costs play a central role in influencing NPLs, alongside other bank-specific factors such as profitability, capital adequacy, and lending practices. The results indicate that a high level of operational inefficiency significantly influences NPLs, whereas ROA and CAR act as mitigating factors for credit risk. Conversely, aggressive lending practices, as indicated by an increased LDR, are associated with higher NPLs. Islamic banks face significant institutional flaws, and agency costs reflect deeper governance issues that cannot be ignored. The study further argues for the need to improve governance, operational efficiency, and prudent lending practices within Islamic banks.

Does governance affect non-performing loans? Empirical evidence of Indonesian banks

This paper examines how good corporate governance (GCG) affects Indonesian banks’ non-performing loans (NPLs) and its relevance to the current banking sector situation in Indonesia. The research findings provide a comprehensive understanding of the effect of bank-specific factors on NPLs, offering timely and important insights for the banking industry. This quantitative study focuses on commercial banks listed on the Indonesian Stock Exchange in 2021. The observation period spans four years (2018–2021), utilizing 216-unit panel data from 54 banks for analysis. Documentation was used for data collection, and panel data multiple regression analysis was employed as the data analysis technique. The findings indicate that increased board of directors’ meetings are associated with higher NPLs, while having independent board commissioners correlates with lower NPLs. The p-value of the board of director meetings is 0.027, and the coefficient is 0.005037. The p-value of the board of independent board commissioners is 0.017, and the coefficient is –0.00109. Effective GCG implementation is crucial in maintaining credit quality and reducing NPL levels. The p-value of the GCG score is 0.043, and the coefficient is –0.42985. However, the frequency of Board of Commissioners’ meetings does not significantly affect NPLs. The study also shows that the Loan Deposit Ratio (LDR) and bank size negatively and significantly impact NPLs. In contrast, Return on Equity (ROE) and leverage do not significantly affect NPL levels in Indonesian banks. This study provides empirical evidence that underscores the importance of robust GCG, especially during the challenging business conditions triggered by the pandemic. AcknowledgmentsThis study received funding from LPPM UNNES, contract number 12.12.4/UN37/PPK.10/2023.

Self-control and knowledge sharing on Chinese farmers’ credit default: Part-time salary as a moderator

In China's rural financial market, farmers’ credit default has resulted in a high non-performing loan (NPL) rate and increased financial risk. This work uses structural equation model (SEM) to study the factors of farmers’ credit default. The results show knowledge sharing would be the key factor, while the self-control variable is not significant. Knowledge sharing has three levels of dimensions among farmers. Financial knowledge is ranked in order of importance, followed by market and agricultural technology knowledge. At the same time, part-time job salary has a significant moderate effect between knowledge sharing and credit default. This work innovatively constructs two levels of rationality and emotion to analyze the credit default, and expands the application of behavioral finance in the field of farmer credit. The findings have some inspirations for reducing farmers' credit default risk.

Elections and bank non-performing loans: Evidence from developed countries

The existing literature has not examined how elections affect bank non-performing loans and its determinants even though banks are often the largest borrowers to fund election campaigns in many countries. This study investigates the determinants of bank non-performing loans (NPL) during election years in 35 developed countries. The fixed effect regression methodology was used to estimate the determinants of bank non-performing loans during election years. It was found that the banking sector experienced high NPLs during election years. Efficient banks operating in robust legal environments have higher non-performing loans during election years. It was also found that capital adequacy ratio, real GDP growth, loan-to-GDP ratio, cost-to-income ratio, political stability, and absence of terrorism are significant determinants of bank non-performing loans. The findings imply that election matters for the persistence of bank non-performing loans in developed countries.

Choosing and Evaluating P2P Lending with Value Engineering as a Decision Support System: An Indonesian Case Study

Peer-to-peer (P2P) lending has gained significant traction in the financial landscape, particularly in developing economies such as Indonesia, where access to traditional banking services remains a challenge for many. The aim of this study is to investigate the application of value engineering as a decision support system for choosing and evaluating P2P lending platforms, using Indonesia as a case study. P2P lending is a relatively new service in the digital economy for lending money to individuals through online financial intermediaries, where borrowers and lenders often have no prior relationship. Value engineering, a systematic approach to improving the value of a product or service, can be a valuable tool in the context of P2P lending. Through applying value engineering principles, P2P lending platforms can identify and prioritize the key factors that influence lending decisions, such as risk, return, and data privacy, to enhance the overall value proposition for both borrowers and lenders. Both value engineering and P2P lending are technoeconomic systems that aim to enhance the overall value and efficiency of a system or process, albeit through different approaches. This study presents a comprehensive framework for applying value engineering as a decision support system for P2P lending in Indonesia. The findings reveal that the value engineering index developed in this study effectively differentiates between P2P lending platforms based on their performance. Specifically, platforms with a high-value index were found to offer competitive interest rates, lower fees, and superior risk management, as evidenced by their non-performing loan (NPL) rates. In contrast, platforms with a low-value index were associated with higher NPLs and less favorable terms for stakeholders. These insights provide practical guidance for P2P lending platforms, regulators, and consumers; highlight the importance of a value engineering approach in optimizing platform selection; and enhance the P2P lending ecosystem’s sustainability in Indonesia.

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.