Non-performing Loans Research Articles

Corruption, Economic Growth, and Non-performing Loans in Sub-Saharan Africa: An Empirical Analysis (2011–2019)

AbstractThis study explores the impact of corruption and economic growth on non-performing loans (NPLs) in Sub-Saharan Africa (SSA) after the global financial crisis. We use the Arellano-Bond Generalized Method of Moments dynamic panel estimation procedure on 493 banks from 31 Sub-Saharan African countries from 2011 to 2019. We find that corruption and economic growth have significantly positively and negatively influenced NPLs in SSA, respectively. We further investigate how corruption affects NPLs and observe that bank size and NPLs have a positive relationship. Simultaneously, well-capitalized banks and the effectiveness of the judicial system reduce the level of NPLs. The study's uniqueness lies in evaluating the impact of corruption on NPLs at the sub-regional level. The results reveal how corruption has not significantly affected Central and Southern African banks' NPLs but vice versa in West and Eastern Africa. The study concludes that NPLs are a dead weight loss to society. The results confirm how anti-corruption campaigns, improvements in judicial regulation, and sustained economic growth can help mitigate non-performing loans. Furthermore, policy implications such as enhancing institutional quality and implementing growth-sustaining measures have been suggested.

Determinants of bank deposit in a small economy’s banking sector: a study of Fiji

Purpose Deposits, a liability component of banks’ balance sheet, are an important source of funding for commercial and retail banks. In this study, the authors consider deposits as dependent variable and examine factors (bank-specific, macrofinance and structural) that could plausibly explain deposits. Subsequently, the findings are expected to support analysts, bank managers and regulators, especially in small economies such as Fiji, for asset–liability management. Design/methodology/approach This study uses a balanced panel of six commercial banks and two credit institutions over the period 2000–2022. To control for bank heterogeneity, a fixed-effect regression method is used. Findings Bank-specific variables such as bank size, profitability, loan-to-deposit ratio and bank stability are positively associated with bank deposits, whereas the capital adequacy ratio is negatively associated with bank deposits. Macroeconomic variables such as remittances and gross domestic product per capita are positively associated with bank deposits. Moreover, institutional variables such as control of corruption, political stability and regulatory quality are positively associated with bank deposits. However, tail events such as the global financial crisis of 2007–09 and the COVID-19 pandemic negatively influence bank deposits. Structural breaks for 2007 and 2011 of two banks (Bank of the Baroda and Bank of the South Pacific, respectively) are positively associated with bank deposits. Originality/value Previous studies have considered profitability, competition, nonperforming loans and stability of banks in Fiji. To the best of the authors’ knowledge, this study is the first to consider the determinants of bank deposits, an important source of funds for banks in many small countries including Fiji. In addition, this study examines the impact of structural breaks, tail events such as the recent pandemic (COVID-19) and institutional variables.

THE IMPACT OF GREEN FINANCE ON BANKING PERFORMANCE IN INDONESIA

Green Finance refers to financial practices that can be described through financial services and products that take environmental sustainability to support sustainable development. The role of green finance is to connect financial goals with the environment to encourage inclusive economic growth. One form of green finance implementation is in financial institutions, especially banking. This study aims to analyze the impact of green finance implementation in the banking sector on banking performance as proxied by the profitability ratio in the 2018-2022 period. The Generalized Method of Moments (GMM) dynamic panel is used. The Green Daily Operation (GDO) and Green Finance Policy (GFP) variables indicate the implementation of green finance in banking. Other independent variables use banking performance ratios consisting of the capital adequacy ratio, non-performing loans, and the bank's operational efficiency ratio. The study results show that green finance represented by implementing GFP can increase profitability, while GDO does not significantly affect banks' profitability in Indonesia. Furthermore, the internal banking ratio that is not significant to profitability is the capital adequacy ratio, while increasing non-performing loans and operational efficiency ratio significantly negatively impacts bank performance because it reduces profitability. This research supports applying the green concept in the banking sector to improve sustainable bank performance.

Financial Stability and Innovation: The Role of Non-Performing Loans

This study analyses the relationship between non-performing loans (NPLs) and innovation systems at a global level. The data were obtained from the World Bank and the Global Innovation Index over the period 2013–2022 for 149 countries. The k-means algorithm was used to verify the presence of clusters in the data. Since k-means is an unsupervised machine-learning algorithm, we compared the Silhouette coefficient with the Elbow method to find an optimization. The results show that the optimal number of clusters is three, as suggested using the Elbow Method. Furthermore, a panel data analysis was conducted. Results show that the level of NPLs is positively associated with cultural and creative services exports as a percentage of total trade and innovation input sub-index and negatively associated with the Hirsch Index, ICT services exports as a percentage of total trade, ICT services imports as a percentage of total trade, and information and communication technologies.

Credit Crunch Detection in Indonesia

This research analyzes the credit crunch phenomenon in Indonesia using the Simultaneity method. The data taken is time series data on the demand and supply side of credit. The research results show that the credit crunch phenomenon occurs from the demand and supply sides. The factors of credit demand are Credit Interest Rate (CIR) and Inflation. Meanwhile, from the supply side, namely Credit Interest Rate (CIR), Third Parties Fund (TPF), Net Interest Margin (NIM), and Non-Performing Loans (NPL). The results of research using the Two Stage Least Square approach show that, simultaneously, the variables inflation, CIR, NPL, NIM, TPF have an influence on the demand and supply of credit which triggers a credit crunch during the Covid-19 pandemic.

The Effect of Inflation, Interest Rates and Non-Performing Loans On Stock Returns Through Profitability In Banking Companies Indonesia Period 2018-2022

Even if the Indonesian economy has grown and the stock market has improved after COVID-19, banking stock returns in Indonesia have remained stagnant. The returns on Indonesian banking stocks in 2022 were much lower than in prior years. Identifying the internal and external variables that contributed to the fall in these shares is an obvious challenge. The purpose of this study is to investigate how return on assets (ROA) acts as a mediator between inflation, interest rates, non-performing loans, and stock returns. Thirty businesses make up the sample for this study, which employs testing methodologies including multiple regression and route analysis. Additionally, in order to find the indirect impact, the Sobel test must be used. This study found that stock returns are positively affected by inflation and return on assets, but unaffected by interest rates and non-performing loans. Unlike inflation and interest rates, return on assets can moderate the impact of non-performing loans on stock returns. stock performance. Things that could affect future returns should be carefully considered by investors.

An integrated analysis of key financial metrics driving commercial bank performance in Cambodia

This study aims to systematically identify and analyze key financial metrics that influence the performance of commercial banks in Cambodia. Utilizing 2023 data from the National Bank of Cambodia across 59 banks, the research adopts an explanatory framework based on cross-sectional data analysis. Findings reveal a statistically significant positive correlation between Non-Performing Loans (NPLs) and Return on Assets (ROA), suggesting effective NPL risk management by Cambodian banks, contrary to traditional financial theory. Loan Growth (LG) does not significantly impact ROA, indicating that external factors like market conditions and loan quality are more critical. Furthermore, Market Share (MS) has no significant impact on ROA, suggesting that market share may not be a critical determinant of bank performance in Cambodia. A significant negative relationship is observed between the Loan to Deposit Ratio (LDR) and ROA, suggesting that higher LDRs expose banks to liquidity risks and reduced profitability. Both Loan Loss Provision (LLP) and Cost to Income Ratio (CIR) negatively affect ROA, while the Effective Tax Rate (ETR) shows a marginally positive relationship. The Net Interest Margin (NIM) significantly impacts ROA, underscoring the importance of managing interest-earning assets and liabilities. Recommendations include investing in advanced risk management frameworks, enhancing loan quality, maintaining a balanced LDR, utilizing technology for cost efficiency, focusing on effective tax planning, and optimizing NIM through competitive pricing. Future research should explore additional contextual factors that affect profitability dynamics in the Cambodian banking sector.. Keywords: Commercial Banks, Financial Metrics, Return on Assets (ROA), Non-Performing Loans (NPLs), Loan to Deposit Ratio (LDR), Cost to Income Ratio (CIR), Effective Tax Rate (ETR), Net Interest Margin (NIM), Loan Growth (LG), Market Share (MS).

The VECM implementation for measuring the impact of monetary variables on Indonesia Property Prices Index

The basic human need for housing makes property investment safer than other sectors because demand tends to be stable despite changing economic conditions. The decision to invest is influenced by various aspects, including economic variables, including GDP, property credit growth, non-performing loans (NPLs), interest rates, exchange rates, and money supply, which are then examined for their influence on the Residential Property Price Index (RPPI) in Indonesia through this research using a Vector Error Correction Model (VECM) with quarterly data from 2003 to 2022. The findings show that GDP, interest rates, and money supply have a significant long-term impact on the RPPI. In the short-term, GDP and property credit growth have a negative impact on RPPI, while NPL and exchange rate do not. Causality tests indicate a bidirectional relationship between NPL and GDP with RPPI, with probability values exceeding 0.05. This study provides valuable insights into the monetary factors affecting residential property prices and suggestions for future research. AcknowledgmentThe authors gratefully acknowledge Ahmad Dahlan University for the support and facilities provided in conducting this research. They also greatly appreciate the academic resources that supported the data collection process and careful analysis of our findings. Besides, the authors express their gratitude to Bank Indonesia and Badan Pusat Statistik for their invaluable contribution to the data used in this research.

LEVERAGING MANAGEMENT INFORMATION SYSTEMS FOR ENHANCING CREDIT RISK ASSESSMENT IN COMMERCIAL BANKS

This study explores the significant impact of Management Information Systems (MIS) on credit risk assessment in commercial banks, examining how these systems enhance decision-making accuracy, operational efficiency, and proactive risk management. By synthesizing findings from 50 peer-reviewed studies, the research reveals that banks using MIS experience a 20-30% reduction in non-performing loans and a 40-50% increase in loan processing speed due to automation and real-time data analysis. The integration of advanced technologies such as artificial intelligence (AI) and predictive analytics further improves credit risk forecasting accuracy by 15-20%, enabling banks to implement proactive risk mitigation strategies that reduce borrower defaults by up to 25%. However, the study also highlights significant challenges, particularly for smaller banks, which face high implementation costs and difficulties integrating MIS with legacy systems. Despite these challenges, the role of MIS in ensuring regulatory compliance, particularly under Basel III, and reducing overall credit exposure by 15-20% underscores its critical importance in modern credit risk management. The findings suggest that while MIS is essential for maintaining financial stability and competitiveness, scalable and cost-effective solutions are necessary for broader adoption across the banking industry.

The Effect Of Non-Performing Loans On The Financial Performance Of Commercial Banks In Ghana

Non-performing loans (NPLs) are considered financial pollution as a result of their high risk and effect on the profitability and liquidity of banks. The study examines the effect of non-performing loans on the financial performance of commercial banks in Ghana. The study is guided by the following research objectives: examining the level of NPLs of commercial banks in Ghana, examining the relationship between loan-to-deposit ratio and profitability and determining the relationship between NPLs and the financial performance of selected commercial banks. The data for this study was obtained from financial institutions from 2010 to 2021. The NPL rate shows some volatility but generally decreases from 2010 to 2014. It reached its lowest point in 2014 at 11.3%. However, from 2015 to 2017, there was a notable increase in the NPL rate, with a peak of 21.59% in 2017. The findings show that non-performing loans have a positive and significant relationship with ROA. The finding indicates a positive and significant relationship between loan deposit ratios. The study recommends the need to implement strong risk management practices to identify and mitigate potential credit risks proactively. This includes monitoring and early detection of deteriorating loan accounts, regular portfolio reviews, and stress testing. By identifying high-risk loans early, banks can take timely actions to mitigate potential losses and prevent loans from becoming non-performing. Also, management has to invest in training and development programs for loan officers and credit staff. Ensure they have the necessary skills and knowledge to accurately assess creditworthiness, detect warning signs, and effectively handle loan monitoring and collections.

Impact of Bank-Specific Factors on Capital Adequacy in the Nigerian Banking Sector: An Empirical Analysis

The study investigates the divergence between the capital adequacy of banks in Nigeria and the Bank for International Settlements' (BIS) global standards for bank capital adequacy. It specifically examines the factors affecting capital adequacy in Nigerian banks. The main objective is to evaluate how specific factors impact capital adequacy within this context. Data spanning from 2012 to 2022 from the Central Bank of Nigeria's Statistical Bulletin was collected for 13 selected deposit money banks in Nigeria. Econometric methods were employed to analyse this data. The findings indicate that asset quality and return on equity (ROE) adversely affect the capital adequacy of Nigerian deposit money banks during the study period. Conversely, bank liquidity, bank size, management efficiency, non-performing loans, and return on assets positively influence bank capital adequacy in Nigeria. It is recommended that particular attention be given to bank liquidity and bank size, as these factors significantly enhance the capital adequacy of Nigerian banks within the reviewed of period

Transforming banking: Examining the role of AI technology innovation in boosting banks financial performance

With the ongoing advancement of technology, artificial intelligence is increasingly being integrated into banking and finance, with the transformative potential to reshape the financial performance of economies worldwide. This research investigates the dynamic relationship between banking and finance artificial intelligence technology innovation and banks' financial performance across 20 countries using the feasible generalized least squares and the generalized method of moments techniques. The results show that banking and finance artificial intelligence technology innovation positively impacts banks' return on assets, highlighting its role in enhancing financial performance. The interaction term between artificial intelligence innovation and economic growth emphasizes their collaborative positive impact on financial performance. Mediation analysis highlights information and communication technology development's role in transforming artificial intelligence innovation into improved financial outcomes. Considering lagged effects, initial innovation surges correlate with improved financial performance, but prolonged exposure leads to diminishing returns. Moreover, the findings indicate that non-performing loans negatively affect financial performance, underscoring the importance of asset quality. Additionally, regulatory capital and economic growth are positively associated with financial performance, while government regulations exhibit a negative impact. This study highlights the essential role of artificial intelligence technology innovation in banking and finance, emphasizing the need to consider economic and technological factors for maximizing its benefits in enhancing financial performance. Policy recommendations include promoting an artificial intelligence innovation ecosystem, adapting regulatory frameworks, and investing in information and communication technology infrastructure to harness artificial intelligence innovation's benefits while addressing associated challenges.

Macro-economics and firm-specific factors impacting the non-performing loans of vietnamese commercial banks in the context of COVID-19

The COVID-19 pandemic has created unprecedented economic disruptions worldwide, with the banking sector being one of the most affected industries. This paper aims to explore the impact of various factors on the nonperforming loans (NPLs) of Vietnamese commercial banks during the COVID-19 pandemic by employing a Bayesian hierarchical regression approach. The analysis highlights that the pandemic has led to a significant and positive increase in the NPLs ratio of Vietnamese banks, indicating that the financial health of these institutions has been adversely affected by the crisis. Moreover, the study uncovers that the impact of COVID-19 on NPLs is not uniform across all banks. Specifically, state-owned banks have experienced a more pronounced increase in NPLs compared to their private counterparts. This disparity suggests that state-owned banks may be more vulnerable to economic shocks due to their broader exposure to sectors and enterprises heavily impacted by the pandemic. The findings of this research offer critical insights into the dynamics of the banking sector in Vietnam during a global health crisis and emphasize the need for targeted policy interventions. The results also underscore the importance of understanding the differential impacts of such crises on various types of financial institutions. By identifying the factors that contribute to the increase in NPLs, this study provides valuable information that can inform future strategies aimed at enhancing the resilience of the banking sector against similar economic disruptions. Furthermore, the findings highlight the effectiveness of the policies implemented during the pandemic to support the banking sector, suggesting areas for improvement and further research.

Pengaruh Non Performing Loan, Loan To Deposit Ratio Dan Biaya Operasional Pendapatan Operasional (BOPO) Terhadap Return On Asset Pada Sektor Perbankan Yang Terdaftar Di Otoritas Jasa Keuangan (OJK) Periode 2017-2021

The purpose of this research is to identify the impact of non-performing loans (NPL), loan to deposit ratio (LDR), and operational income operating costs (BOPO) on return on assets (ROA) in corporate banking. This research was conducted on banking sector corporations registered with the Financial Services Authority (OJK) in the 2017-2021 period. Purposive sampling was used as a sampling method involving 64 sample issuers. Quantitative data and secondary data used in research. Observation and documentation studies are used as collection techniques. Multiple linear regression analysis was used as a data analysis technique. The research results indicate that simultaneously, return on assets (ROA) is significantly influenced by non-performing loans (NPL), loan to deposit ratio (LDR) and operational income operating costs (BOPO). Partially, return on assets (ROA) is significantly negatively affected by non-performing loans (NPL) and operating income operating costs (BOPO), on the other hand, return on assets (ROA) is significantly influenced positively by the loan to deposit ratio (LDR).

The Influence Of Capital Adequacy Ratio (CAR), Non-Performing Loan (NPL), Loan To Deposit Ratio (LDR), And Operational Costs To Operating Income (BOPO) On Return On Asset (ROA) In Banks Listed On The Indonesia Stock Exchange

The objective of this research is to determine the effect of the Capital Adequacy Ratio (CAR), Non-Performing Loan (NPL), Loan to Deposit Ratio (LDR), and Operational Costs to Operating Income (BOPO) on Return on Assets (ROA) in banks listed on the Indonesia Stock Exchange. The sample was selected using purposive sampling, with a total of 32 banks. The research data were tested using multiple regression analysis. The results of the study show that the Capital Adequacy Ratio (CAR) has no effect on Return on Assets (ROA), while Non-Performing Loan (NPL), Loan to Deposit Ratio (LDR), and Operational Costs to Operating Income (BOPO) have a negative and significant effect on Return on Assets (ROA). y.

Effect of Capital Adequacy, Bank Size and Lending Interest Rate on Profitability of Commercial Banks in Nepal

Purpose : This study aims to examine the effect of capital adequacy, bank size and lending interest rate on the profitability of commercial banks in Nepal.Methods: This research used a combination of descriptive and causal comparative research design using secondary source of data obtained from the annual report of corresponding commercial banks. A panel data from the fiscal year 2013/14 to 2022/23 were obtained from six randomly selected commercial banks. Results: The capital adequacy ratio exhibits a significant positive impact on ROA signifying that a robust capital base strengthens financial stability, lowers funding costs, and promotes profitable lending operations. The analysis reveals that bank size has negative effect on ROA but the effect is insignificant suggesting that variations in size do not substantially influence profitability, implying that other determinants are more critical in shaping financial performance. Furthermore, the results indicate a significant negative effect of lending interest rates on return on assets (ROA), which are attributed to factors such as increased borrower repayment capacity, reduced loan demand, higher non-performing loan risks, and elevated funding costs negatively impact overall bank profitability Conclusion: Capital adequacy ratio plays a critical role in increasing bank profitability. Other factors such as bank size and lending interest rates need to be managed to optimize financial performance. Future research is necessary to explore these relationships in more diverse banking environments and consider additional variables to further understand the drivers of bank profitability.

Impact of the Covid-19 Pandemic on the Financial Health of Nepalese Development Banks: A Comparative Analysis

Purpose: This research aims to evaluate the impact of the COVID-19 pandemic on the financial health of Nepalese development banks by comparing their financial ratios before and after the pandemic outbreak. It seeks to identify areas of strength and weakness enabling stakeholders to make informed decisions regarding the sector’s stability and prospects.Methods: Descriptive research design with a longitudinal comparative approach has been adopted. Financial ratios are calculated for six selected development banks for the period of 2017-2023. Mean ratios are computed for pre-COVID and post-COVID periods, and percentage changes are analysed using paired sample t-tests.Results: The analysis reveals significant differences financial ratios during the periods of pre and post-COVID including shifts in asset allocation, increased non-performing loans, reduced capital adequacy, improved market valuations, and decreased profitability ratios.Conclusion: The study demonstrates the pandemic’s wide-ranging impact on Nepal’s development banking sector, highlighting the need for effective risk management, capital planning, and strategic changes to maintain financial stability and to facilitate effective recovery.

The Influence of Capital Adequacy Ratio (CAR), Non-Performing Loans (NPL), Return on Assets (ROA), and Loan To Deposit Ratio (LDR) on Financial Sustainability in Regionally Owned Enterprises (BUMD) Bank Pasar Kulon Progo for the 2018-2023 Period

Bank Pasar Kulon Progo plays a key role in promoting regional economic growthand improving welfare. To maintain financial stability, it is essential to assessfactors influencing financial sustainability. This study examines the impact ofCapital Adequacy Ratio (CAR), Non-Performing Loans (NPL), Return on Assets(ROA), and Loan to Deposit Ratio (LDR) on the Financial Sustainability Ratio(FSR) of Bank Pasar Kulon Progo from 2018 to 2023. A quantitative approachwas used, analyzing financial report data with purposive sampling. Multiplelinear regression was applied to assess the relationships between the variables.The results show that CAR, NPL, ROA, and LDR have a significant impact onFSR, collectively explaining 79.5% of its variation (R² = 0.795). The remaining20.5% is influenced by other factors outside the model. These findings suggestthat effective management of CAR, NPL, ROA, and LDR is crucial for ensuringthe financial sustainability of Bank Pasar Kulon Progo.

The local wisdom approach in resolving non-performing loans at traditional village credit institution in Bali: a case study during the COVID-19 pandemic

This study explores the role of local wisdom in managing non-performing loans (NPLs) within Village Credit Institutions (VCDs) in Bali during the COVID-19 pandemic. Using a case study approach, the research examines the effectiveness of traditional mechanisms such as awig-awig (customary law) and pararem (community agreements) in maintaining social cohesion and addressing financial challenges. Through qualitative methods, including in-depth interviews with key stakeholders and document analysis, the study seeks to understand how these customary practices contribute to resolving NPLs. The findings indicate that local wisdom fosters community engagement and dialogue, offering temporary solutions to financial problems during crises. These traditional mechanisms promote a sense of collective responsibility and help maintain social harmony by facilitating discussions between debtors and VCDs. However, the research also highlights several limitations. While effective in the short term, local wisdom struggles to enforce sanctions and provide long-term resolutions, especially during severe economic downturns like the pandemic. This issue is compounded by external factors such as Bali’s heavy reliance on tourism, which makes the local economy highly vulnerable to global disruptions. The lack of digital infrastructure and the absence of integrated government support further intensify the challenges faced by VCDs in managing NPLs. The study concludes that while local wisdom remains a valuable tool for crisis management, its effectiveness is constrained in times of prolonged financial instability. For VCDs to achieve long-term sustainability and resilience in future crises, it is essential to integrate traditional practices with modern financial systems. Additionally, stronger government support, including digital infrastructure development and comprehensive financial regulations, is crucial to ensure the sustainability of VCDs. This combination of traditional and modern strategies can help VCDs navigate future economic challenges more effectively and safeguard their role in the local economy.

Capital price distortion, financial leverage, and credit risk in commercial banks

This paper uses panel data from 30 provinces and cities from 2012 to 2022 (excluding Tibet, Hong Kong, Macao, and Taiwan), and empirically examines the impact of capital price distortion and financial leverage on the non-performing loan (NPL) ratio of banks by constructing a dynamic panel system GMM model. The study finds that capital price distortion and financial leverage have a significantly positive impact on the NPL ratio of commercial banks. Increasing the degree of capital price distortion and financial leverage leads to a higher NPL ratio. Further analysis reveals that capital price distortion has a significantly positive impact on financial leverage, while Overcapacity has a significantly negative impact on financial leverage.