Macroeconomic Determinants Of Non-performing Loans Research Articles

Analysis of macroeconomic determinants of non-performance in consumer and mortgage loans

We investigate the macroeconomic determinants of non-performing loans (NPLs) in two dynamic unbalanced panels: consumer loans and mortgages, utilizing quarterly data for eight countries from 1992 to 2019. The article assesses which variables are key determinant factors, both in and out-of-sample, and whether they have the same impact in both portfolios. These variables are the lagged ratio of NPLs, credit level, real GDP, short-term real interest rates, real house price indices, and stock indices. We compare different econometric techniques applied to intermediate-sized panels and evaluate forecasting abilities. Results support pooled estimations, and mortgages exhibit higher sensitivities and better forecasting performance.

Macroeconomic determinants of non-performing loans: A quantile regression approach evidence from Vietnam's banking system

This study investigates the impact of economic growth, inflation, money supply, and real interest rates on non-performing loans (NPLs) in the Vietnamese banking system. To achieve the research objective, we employ Ordinary Least Squares and Quantile regression methods to estimate models with data collected from the World Bank on the Vietnamese banking system for the period 2000-2020. The Ordinary Least Squares estimation results do not find a significant impact of economic growth on NPLs, but Quantile regression estimation results reveal that economic growth has a negative effect on NPLs for the lower quantile groups, with this effect being insignificant for the quantile groups above 0.3. Furthermore, the study's findings indicate that inflation and real interest rates have a negative impact on NPLs across most quantile groups, while the money supply has a negative impact on NPLs only in the medium quantiles (0.4 and 0.5) and high quantile groups (above 0.7). Additionally, we found a stable equilibrium between NPLs and economic growth, inflation, money supply, and real interest rates, with a positive long-term impact of economic growth, inflation, money supply, and real interest rates on NPLs. The research findings propose several policy implications for controlling NPLs in the Vietnamese banking system.

Macroeconomic Determinants of Non-Performing Loans in Malaysia

This study re-examines the macroeconomic variables those explaining the outstanding balance of non-performing loans (NPL) in Malaysia, namely interest rate, unemployment rate, output, and price level. It covers 11 financing sectors between commercial and Islamic banks, for examples, primary agriculture, electricity, gas and water supply, manufacturing, household sectors, and so on. The data covers monthly observations for the period 2019-2021. Given non-stationarity property in nature for the variables, the ordinary least square (OLS) estimator applies for the first-differenced variables. The empirical results show that higher output reduces overall NPL including of Islamic banks but is inelastic. The past NPL explains the recent outstanding balance. The macroeconomic variables explain the most for primary agriculture, construction, mining & quarrying, transport, storage & communication, and other sector. This study also provides some relevant policy implications.

Küresel Finansal Kriz, Covid-19 Pandemisi ve Banka Sahiplik Yapısının Türkiye'deki Takipteki Krediler Üzerindeki Etkileri

Using System Generalized Method of Moments and data for 23 deposit banks over the period 2002-2020 this study aims to investigate the bank-specific and macroeconomic determinants of non-performing loans in Turkey. For a well-functioning banking system, it is important to understand the empirical determinants of non-performing loans. In this context, we particularly focus on the effects of global financial crisis, Covid-19 pandemic, and bank ownership structure on non-performing loans. To provide additional insights, we divide our sample into two as the pre-crisis and post-crisis periods. Our results indicate that both bank-specific and macroeconomic factors play a significant role in explaining the non-performing loans. Moreover, we find a negative impact of Covid-19 pandemic while there is no evidence for any significant impact of the last global financial crisis. More interesting is to note that bank ownership structure does not exert any significant effect on non-performing loans. Furthermore, the determinants of non-performing loans greatly differ in pre-crisis and post-crisis periods. We think that a sound banking and financial system would play a decisive role for allocating financial resources and thus supporting macroeconomic stability.

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.

Are non-performing loans sensitive to macroeconomic determinants? an empirical evidence from banking sector of SAARC countries

The study empirically investigates selected macroeconomic determinants of non-performing loans (NPLs) for a panel of 8 South Asian Association for Regional Cooperation countries (Afghanistan, Bangladesh, Bhutan, India, Nepal, Maldives, Pakistan, and Sri Lanka), using annual data for the period 2008–2019. To examine the association, this study, primarily, conducted the OLS model, fixed effect estimates, and random effect estimates and, eventually, applied robust fixed effect estimates to resolve the problem of heteroscedasticity. The empirical findings confirmed the previous findings, indicating a significant positive association with the government budget balance and a significant inverse relationship with GDP, sovereign debt, inflation rate, and money supply. To reduce the aggregate NPLs in the South Asian Association for Regional Cooperation economy, the respective country’s government should identify the financial sector’s vulnerabilities and, thereby, emphasize boosting the economic growth, ensuring a moderate level of money supply along with inflation rate. The findings are useful for formulating macro-prudential along with fiscal policies to avoid the subsequent NPLs shock in South Asian Association for Regional Cooperation countries.

Bank-Specific and Macroeconomic Determinants of Non-Performing Loans of Commercial Banks in Bangladesh

Bank-Specific and Macroeconomic Determinants of Non-Performing Loans of Commercial Banks in Bangladesh

Determinants of non-performing loans in the United Arab Emirates conventional banks

This study attempts to define the bank-specific and macroeconomic determinants of non-performing loans in sixteen conventional banks operating in the United Arab Emirates during the period 2013-2019. The study analyzed the data from banks’ annual reports and data streams database where standard descriptive statistics and random effect model for hypothesis testing were used. The independent variables were regressed against non-performing loans ratio by using GRETL statistical tool. The study concluded that the determinants of the non-performing loans were the Return on Assets that had significant negative relationship with the non-performing loans, and Liquidity, and Loans to Deposits Ratios that had significant positive relationship. However, other bank-specific and macroeconomic factors were not a determinant of non-Performing Loans Ratio. Therefore, this study suggests that conventional banks in United Arab Emirates must develop new investments instruments as major source of income rather than relying heavily on lending activities. Additionally, it is especially important to improve the management efficiency of the operating expenses and keep good assets quality. Furthermore, this study suggests measuring the impact of more variables on the non-Performing Loans for longer period of study to have more accuracy and results’ generalizations.

Industry-Specific and Macroeconomic Determinants of Non-Performing Loans: A Comparative Analysis of ARDL and VECM

With the growth of an economy, the banking industry expands and the competitiveness becomes intense with the increased number of banks in the economy. The objective of this research was to discover the influence of industry-specific and macroeconomic determinants of non-performing loans (NPLs) in the entire banking system of Bangladesh. We performed an analysis for the period from 1979 to 2018 by an autoregressive distributed lag (ARDL) model and checked the robustness of the results in the vector error correction (VEC) model. The outcomes of this research suggest that both industry-specific and macroeconomic factors influence NPLs significantly. Among the industry-specific determinants, bank loan growth, net operating profit, and deposit rates negatively impact NPLs with statistical significance while bank liquidity and lending rates have a significant positive affiliation with NPLs. Gross domestic product (GDP) growth and unemployment, among the macroeconomic variables, have a negative connection with NPLs. Whereas, domestic credit and exchange rates have a significant positive association with NPLs. The contribution of this research is that the outcomes found by means of econometric models can be used for predicting and measuring NPLs in upcoming years, not only for Bangladesh but also for developing and emerging economies. Individual banks, as well as the banking sector, by and large, can get a guideline from this research.

Macroeconomic and Idiosyncratic Factors of Non-Performing Loans: Evidence from Pakistan’s Banking Sector

Using panel data approach in the Pakistan banking sector over the period 2010 to 2016, we examine the bank-specific and macroeconomic determinants of non-performing loans. We use quantitative research design with OLS random effect model. Furthermore, we use various regression and correlation analysis in this study. We find that rise in capital adequacy ratio, bank size, GDP growth rate, and inflation, reduces the non-performing loans (NPL) ratio. Our results also show that a rise in loan loss provisions enhances the NPL ratio. Our results suggest that banks with poor asset-quality can sabotage the growth of fiscal as well as the economic sector. Outcomes of the study emphasis on the need to clear-out the NPLs to keep financial sector sound. NPLs can cause high loan loss provisions which affect the capitalization of banks that ultimately impacts fiscal and economic growth. Bank supervisory agencies should therefore pay attention to monitory and macroeconomic policies of the banks. This study examines the impact of idiosyncratic and macroeconomic determinants of non-performing loans on banks’ asset quality using recent data from 2010 to 2016, the time period when major banking sector reforms were launched.

Macroeconomic Determinants of Non-Performing Loans in Bangladesh: An ARDL Approach

Macroeconomic Determinants of Non-Performing Loans in Bangladesh: An ARDL Approach

Macroeconomic determinants of non-performing loans in GCC economies: does the global financial crisis matter

This paper uses the OLS, fixed effects, Arellano and Bond GMM and VAR model to empirically examine the macroeconomic determinants of non-performing loans in GCC through the period from 1998 to 2016. The main findings conclude that non-oil GDP growth, domestic credit to private sector to GDP ratio and inflation rate have negative effects on non-performing loans. Whereas, interest rate and financial crisis have positive effects on non-performing loans. The findings also suggest that the domestic credit to private sector to GDP ratio is the main factor affecting non-performing loans in the short run. While, interest rate is the main factor which influences non-performing loans size in the long run is a faster during the period before the financial crisis.

Bank-specific and macroeconomic determinants of non-performing loans in the Republic of Macedonia: Comparative analysis of enterprise and household NPLs

The purpose of this paper is to explore the influence of bank-specific and macroeconomic determinants of all non-performing loans (NPLs) to enterprises and households in the Republic of Macedonia. The analysis is performed for the whole banking sector for the period 2003Q4 to 2014Q4, by applying the Autoregressive Distributed Lag Modelling Approach (ARDL), the co-integration model implementing quarterly time series. The results of the research indicate that the profitability of banks, the growth of loans to enterprises and to households respectively, as well as the growth of GDP, all have a negative impact, while banks’ solvency and unemployment have a positive impact on the rise of non-performing loans in both models. In addition, regarding enterprises, we found that the exchange rate has a positive and statistically significant impact on the level of NPLs, while inflation has a negative and statistically significant impact on the increase in non-performing loans to households. The main contribution of this paper is that the results obtained by econometric analysis may be used for forecasting non-performing loans several years in the future, as well as for stress-testing both the entire banking system and the individual banks operating in the Republic of Macedonia.

Macroeconomic determinants of non-performing loans in GCC economies: does the global financial crisis matter

This paper uses the OLS, fixed effects, Arellano and Bond GMM and VAR model to empirically examine the macroeconomic determinants of non-performing loans in GCC through the period from 1998 to 2016. The main findings conclude that non-oil GDP growth, domestic credit to private sector to GDP ratio and inflation rate have negative effects on non-performing loans. Whereas, interest rate and financial crisis have positive effects on non-performing loans. The findings also suggest that the domestic credit to private sector to GDP ratio is the main factor affecting non-performing loans in the short run. While, interest rate is the main factor which influences non-performing loans size in the long run is a faster during the period before the financial crisis.

Do Macroeconomic Determinants of Non-Performing Loans Vary with the Income Levels of Countries?

Abstract This paper explores the macroeconomic determinants of non-performing loans (NPL) in 19 Asian countries (low to high income economies) using the Generalized Method of Moments estimation approach based on the economic data for the period between 1998 and 2015. The categorization of the economies is based on the average gross national income per capita as set by the World Bank. Specifically, the paper aims to evaluate if the determinants of NPL vary with the income levels of the countries. The results indicate that the NPL is strongly influenced by the inflation rate. The effect is, however, negative in the high-income and the middle-income countries and positive in the low-income countries. The GDP per capita has a dynamic negative relationship with the NPL in the high-income and the low-income countries. The remittance has a significant positive association in the high-income and a significant negative association in the low-income countries. Similarly, the unemployment rate has a positive effect on NPL in the middle-income and the low-income countries. With the rise in the official exchange rate, the NPL level increases in the low-income countries. The overall estimation results suggest that the NPL in Asian banking system depend on some key macroeconomic variables, such as unemployment rate, inflation rate, official exchange rate, remittance received and gross domestic product per capita, and these associations vary with the income level of the countries. Therefore, economic level of a country should be carefully considered while formulating credit policy to minimize credit risks in the banking system.

Macroeconomic Determinants of Non-Performing Loans: Case of Turkey and Saudi Arabia

Non Performing loans (NPLs) are important variables on a macro scale for the financial stability of the country as well as microscale for banks profitability itself. Since 2008 global crisis, NPLs are monitored worldwide and became systemically important. In this research, by using a data set between 2000-2016, the macroeconomic determinants of NPLs have been investigated for Turkey and Saudi Arabia. By using NPL ratio as the dependent variable and estimating through beta regression analysis, it is found that market capitalization and inflation variables are pozitively related with NPL for Turkey while GDP, inflation, debt, market capitalization and money supply have positively related with NPL for Saudi Arabia and unemployment and transparencey variables are negatively related with NPL for Saudi Arabia . It has been found that the NPL ratios are well explained by some macroeconomic variables. Countries with different macroeconomic conditions have different determinants of NPLs

Macroeconomic Determinants Of Non-Performing Loans In Nigeria: An Empirical Analysis

The intermediation role of banks which is vital for the development of any nation can be adversely affected by non-performing loans. This study investigated the macroeconomic determinants of non-performing loans in Nigeria, using time series data for the period 2005 to 2014 collated from Central Bank of Nigeria Statistical Bulletin, Nigeria Deposit Insurance Corporation annual report, World Bank Development Indicators and International Financial Statistics. The choice of the period 2005 to 2014 was premised on the fact that the number of banks in Nigeria was reduced from 89 to 25 in 2005 due to the banking recapitalization exercise initiated by the CBN which led to the consolidation of banks. The dependent variable used in the study was non-performing loan (NPL). 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). The outcome of the regression result showed that GDPGR has a positive relationship with NPL. The result also revealed that INF and ER have a positive relationship with NPL while LR, M2GDP, and UR have a positive and significant relationship with NPL. Of the six macroeconomic variables used in the study, it can be observed that only LR, M2GDP, and UR determine NPL in Nigeria while GDPGR, INF, and ER have a positive relationship with NPL but do not influence or determine NPL in Nigeria. The policy implication of this study is that the monetary authorities should ensure that the lending rate charged on loans by deposit money banks is reasonable to enable borrowers to repay the borrowed fund. Finally, the government should direct its monetary and fiscal policies towards reducing unemployment by creating an enabling environment conducive for business growth through the provision of social and infrastructural facilities.

Nonperforming loans and bank profitability: evidence from an emerging market

PurposeThe purpose of this paper is to investigate the bank-specific and macroeconomic determinants of nonperforming loans (NPLs) as well as the impact of NPLs on bank profitability.Design/methodology/approachUsing a sample of 22 Ghanaian banks over the period 2005-2010, the study employs a fixed effect panel model in estimating three different empirical models.FindingsThe study finds new evidence of bank-specific factors as well as macroeconomic factors determining NPLs. Inflation and industry concentration are not significant in determining NPLs, although both are positively related to NPLs.Practical implicationsThe findings of this study have important implications for policy makers and bank managers.Originality/valueThe paper offers significant value in shaping and improving the banking sector of emerging markets.

Key Determinants of Non-performing Loans: New Evidence from a Global Sample

Using a novel panel data set we study the macroeconomic determinants of non-performing loans (NPLs) across 75 countries during the past decade. According to our dynamic panel estimates, the following variables are found to significantly affect NPL ratios: real GDP growth, share prices, the exchange rate, and the lending interest rate. In the case of exchange rates, the direction of the effect depends on the extent of foreign exchange lending to unhedged borrowers which is particularly high in countries with pegged or managed exchange rates. In the case of share prices, the impact is found to be larger in countries which have a large stock market relative to GDP. These results are robust to alternative econometric specifications.

Macroeconomic Determinants of Non-Performing Loans: An Empirical Study of Some Arab Countries

The issue of non-performing loans is one of the factors that reflect the soundness of the banking sector. The main objective of this study is to identify macroeconomic determinants of non-performing loans in some Arab countries through the period 2000-2012 using the dynamic panel data approach. The outcomes of this paper suggest that inflation rate has a negative impact on NPLs, whereas improvement in macroeconomic and financial conditions seems to have a negative impact on the level of NPLs. Regarding the impact of the global financial crisis, the results show that the crisis had a negative impact on the level of NPLs. With regard to household consumption, the outcomes point out to mixed results where this effect seems to be negative in non-petroleum countries but positive in petroleum countries, whereas increasing of government spending is associated with low level of NPLs in both groups of countries. Moreover, an increase of the aggregate debt burden has a positive impact on the level of bad loans whereas expansionary monitory policy and improvement of terms of trade in petroleum countries have a significant negative effect on NPLs but this effect is not clear in non-petroleum countries.