Determinants of the level of non performing loans in commercial banks of transition countries 4 1. This study aims to tackle the issue and to verify the impact of bankspecific determinants and macroeconomic indicators on banks loan quality. Problem loans, referred to as nonperforming loans npl, are loans which are not paid. This study investigates the factors affecting non performing loans of commercial bank of ethiopia during the period from 2002 to 2015.
However, determinants o f non performing loans vary from coun try to country and across regions depending on economic conditions and the maturity of the banking and the financial sector eichengre. The current study used total 11 variables in which three macroeconomics and eight bank specific variables. A mixed research approach and explanatory design were adopted in. Macroeconomics determinants of nonperforming loans in. Determinants of the level of nonperforming loans in commercial banks of.
A research report submitted to the business school university of ghana, legon in partial fulfilment of the requirements for the master of business administration in finance. Pdf micro and macro determinants of nonperforming loans. Regionalspecific determinants of nonperforming loans by. Jan 21, 2015 in order to extend the literature on non performing loans, the researcher suggested incorporating models of golem effect, social loafing, inverted pyramid effect, pollyanna effect and high default culture effect. Using a novel panel data set we study the macroeconomic determinants of nonperforming loans npls across 75 countries during the past decade. Determinants of the level of nonperforming loans in. Assessing banks internal factors as determinants of nonperforming loans. Evidence from the jordanian banking sector khaled subhi rajha1 abstract this paper investigates the determinants of non performing loans in the jordanian banking sector during the period 20082012. The main determinants affecting nonperforming loans in the countries subject to analysis are loan growth, gdp growth and exchange rate. The variables were chosen based on findings from the previous literatures. Pdf pthe nonperforming loans npl of financial institutions are considered as a significant issue in the context of nepal for last few decades. This study intends to assess determinants of nonperforming loans.
Npl, commonly known as loans in arrears for at least 90 days, lead to a rapid. Empirical determinants of the nonperforming loans in the. Determinants of nonperforming loans in ghana banking industry 41 simultaneity recurring to ad hoc instrumental variables to represent the internal and external causes of npls and then inefficiency. Zurairah bt isahak research report submitted in partial fulfillment of the requirements for the degree of master of business administration june 2010. Determinants of nonperforming loans clute journals. Specifically, this paper studies how mfi loan delinquency rates change with variation in yearly gdp growth. Differences in the quantitative impact of macroeconomic factors among loan categories are evident.
The study adopted a partly descriptive and a partly correlational research design. Also, basing on the merits of the study, the researcher suggests determining relationship between nonperforming loans and loan size, collateral, credit culture, and credit. In recognition of the need to improve asset quality while strengthening the regions financial infrastructure, the eccb has taken the lead on facilitating the npl. There is no global standard to define non performing loans at the practical level.
What are some of the remedial practices that can be implemented to reduce the level of non performing loans at commercial bank of africa kenya. The sample comprises 29 banks over the period from 2007 to 2014. Determinants of loan defaults by small and medium enterprises. Macroeconomic and bankspecific determinants of non. To examine the factors that affect npls in malaysia, the researcher used multiple linear regressions as a method to acquire the results. A nonperforming loan is taken as both the independent and dependent variable. This paper empirically studies the macroeconomic factors determining the non performing loans npls of the banking and financial institutions in malaysia. Their study showed that a substantial part of the variation in loan losses practice 38 1 3759 2014 40 ped the concept of the.
Determinants of the level of nonperforming loans in commercial. An empirical study with reference to the greek crisis. This paper investigates the determinants of non performing loans in the armenian banking sector during the period 20042016. Pdf macroeconomics determinants of nonperforming loans. Pdf on aug 1, 2016, dimitrios anastasiou and others published determinants of nonperforming loans. This research is an explanatory research design that identifies the cause and effect relationships between the npls and its determinants. The determinants of nonperforming loan portfolio in the argentine banking system.
Loans are the main asset class from which banks generate their major portion of income and also signify the greatest risk to banks. Pdf the study attempts to ascertain the determinants of nonperforming loans in the guyanese banking sector using a panel dataset and a fixed effect. In order to extend the literature on nonperforming loans, the researcher suggested incorporating models of golem effect, social loafing, inverted pyramid effect, pollyanna effect and high default culture effect. This paper aims to evaluate the macroeconomic and bank specific determinants of nonperforming loans npl in the nepalese banking system using. Determinants and macroeconomic impact prepared by kimberly beaton, alla myrvoda imf, and shernnel thompson eccb1 authorized for distribution by trevor alleyne november 2016 abstract this paper assesses the determinants of npls in the eastern caribbean currency union. Similarly vogiazas and nikolaidou 2011 investigated the determinants of non performing loans in the romanian banking sector during the greek crisis for the period 2001 2010.
Using a set of time series data from q12006 to q42015, autoregressive distributed lag ardl. Assessing banks internal factors as determinants of non. Determinants and macroeconomic impact prepared by kimberly beaton, alla myrvoda imf, and shernnel thompson eccb1 authorized for distribution by trevor alleyne november 2016 abstract this paper assesses the determinants of npls in. Crdb bank offers a comprehensive range of corporate, retail, business, treasury, premier, and microfinance services. Hence, the factors which explain the problem loans are very useful information for banks. This paper investigates the determinants of nonperforming loans in the. In particular, it investigates the impact of macroeconomic and bank specific factors on the volume of npl. This secondary study used panel data of 39 banked across 6 years 20062011 in pakistan.
The objective of this paper is to identify the main determinants of nonperforming loans in the euroarea banking system for the period 1990q12015q2 using gmm estimations. There has been significant indication that the financial crises in the usa, subsaharan africa and east asia were signalled by high levels of non performing loans npls. Pdf determinants of nonperforming loan in nepalese. On top of the bank and countryspecific variables proposed by the. Empirical investigation of bankspecific microeconomic factors of npls with respect to. The purpose of this study is to find the determinants of bank non performing loan in the context of pakistan. The impact of nonperforming loans and bank performance. In this study we tried to detect the determinants of nonperforming loans for a sample of 85 banks in three countries italy, greece and spain for the period of 20042008. Exploiting crosscountry variation in non performing loan trends is likely to yield more robust results than an analysis of individual countries. Saba, kouser and azeem 2012 in their study on determinants of non performing loans in the us banking sector for the period 19852010 using ols regression model for data analysis and found that real total loans have positive significant effect on non performing loans, while interest rate and gdp per capital has a negative. The paper presents the use of the difference gmm and the system gmm for the purpose of determining the critical determinants of non performing loans.
Empirical determinants of the non performing loans in the cypriot banking system christos christodoulouvolos1 and andreas hadjixenophontos1 abstract high levels of nonperforming loans npls weigh heavily on private investment and the ability of banks to meet their basic financing role in society. What are the determinants of non performing loans in botswana thesis. Their findings indicated that construction and investment expenditure, unemployment and inflation. The effect of non performing loans on the financial performance of commercial banks in ethiopia. In recent years, the interest in nonperforming loans and their determinants has great ly increased, since we. A bank loan is to be considered nonperforming loan when more than 90 days pass without the borrower paying the agreed installments or interest. Determinants of the non performing loans of commercial banking institutions in malaysia by.
Industryspecific and macroeconomic determinants of non. In fact, time series for non performing loans are typically short, often covering, at most. Furthermore, fixed effect model was used to examine the determinants of npls. Performance of loan repayment determinants in ethiopian micro. Highlights we examine the determinants of non performing loans npls in the greek banking sector separately for each category of loan. Introduction the sharp rise in non performing loans npls in the last decade has caught the attention of many scholars around the world to try to explain this phenomenon. Effect of nonperforming loans the effect of nonpayment of due debts on banks.
A straightforward meaning of nonperforming keywords. Determinants of the level of non performing loans in commercial banks of transition countries 6 problems caused by the economic crisis and the decrease of emigrant incomes. Against this background, the objective of this study is twofold. A nonperforming loan is either in default or close to being in default. Bad debt can pose huge problems to the bank by negatively affecting bank results and performance that would lead to banking crisis. This paper examines fluctuations in microfinance loan performance over the business cycle. Determinants of nonperforming loans in central and eastern. The case of indonesian islamic bank doubtful finance showing a bad performance of a company, but this can be avoided if the banks use the right strategy to prevent such financial condition. Pdf determinants of loan repayment in commercial banks.
The impact of nonperforming loans on bank lending behavior. Macro and micro determinants of the non performing finance. Determinants of microfinance loan performance and fluctuation. The aim of the paper is to point out the theoretical advantages of gmm in relation to other often used panel data estimators in the study of npls, and to demonstrate its advantages in the case.
It is in the light of this that the paper examines the determinants of nonperforming loans in. Performance of loan repayment determinants in ethiopian. Performing loans, pakistan 1 full installment of primary and intrigue is never again expected, 2 standard or intrigue is 90 days or 1. They further explained that if the loans principal and payment of interest overdue by 90 days, it may be regarded as nonperforming loan. However, in order to control non performing loans, it is necessary to understand its roots causes. In this study we tried to detect the determinants of non performing loans for a sample of 85 banks in three countries italy, greece and spain for the period of 20042008. Investigating the determinants of nonperforming loans in the romanian banking system. The purpose of the present study is to identify the factors affecting the nonperforming loans rate npl of eurozones banking systems for the period 20002008, just before the beginning of the recession. Nonperforming loan npl and bank loan bkln growth in bangladesh in billion usd source. A comparative analysis on nonperforming loans npls in the. Javid 20 state that a loan is considered as nonperforming if default or closed to being in default. The nonperforming loans are another way called bed debt european central bank, 2016.
Furthmore, this paper also studies the correlation er between non performing loans and gdp according to mfi status as a non or forprofit. Effect of nonperforming loans on bank performance of some. What are the determinants of nonperforming loans in botswana. First, the study aims to evaluate the determinants of nonperforming loans in cesee economies by looking at both banklevel data and macroeconomic indicators over 19982011. Determinants of non performing loan on ethiopian commercial banks. Npls can be explained by macroeconomic variables and management quality. The event of the global financial crisis has proved and revealed that external funding. Performance of loan repayment determinants in ethiopian micro finance an analysis ejbe 2014, 7 page 33 experience, profit, age, supervision and offfarm income have positive effects on loan repayment performance wongnaa and awunyo,20. Factors affecting nonperforming loans in commercial bank.
Sinkey and greenwalt 1991 and gambera 2000 also studied the determinants of npl in the usa and showed the important. However, in recent times, the banks have become very cautious in extending loans due to non performing. May 22, 2015 using a novel panel data set we study the macroeconomic determinants of non performing loans npls across 75 countries during the past decade. Also, basing on the merits of the study, the researcher suggests determining relationship between non performing loans and loan size. Notably, studies in this regard with respect to the small developing countries banking sector have received less attention. In kenya, the ratio of non performing loans was 33% as at end of year 2000 in comparison with other african economies, the ratio is much lower. In the case of exchange rates, the direction of the effect. Determinants of nonperforming loans in banking sector in. Regionalspecific determinants of nonperforming loans by sergey. This paper investigates the macroeconomic determinants of credit risk in the banking system of 22 subsaharan african economies. Nonperforming loans european central bank european union.
First, the study aims to evaluate the determinants of non performing loans in cesee economies by looking at both banklevel data and macroeconomic indicators over 19982011. The banking sector stability depends in large part on the size of non performing loans npls. We measure credit risk as the ratio of non performing loans to total gross loans npls and employ dynamic panel data methods over the period 20002016. Crdb bank plc is a whollyowned private commercial bank in tanzania. The impact of macroeconomic determinants on nonperforming. Determinants of credit risk in the banking system in sub. Therefore, this study aims to examine the determinants of npls with a case of.
Pdf investigating the determinants of nonperforming. This paper examines the determinants of non performing loans npl in kazakhstan banking sector for aggregate volume of bad loans. Based on the above, this paper investigates the determinants of non performing loans in the jordanian banking. Macro and micro determinants of the nonperforming finance. Econometric model of nonperforming loans determinants. Determinants of non performing loans in commercial banks.
Our empirical results show that gdp growth is inversely related to non performing loans, suggesting that an improvement in the real economy translates into lower non performing loans. The objective of this paper is to identify the main determinants of non performing loans in the euroarea banking system for the period 1990q12015q2 using gmm estimations. Specifically, the study attempted to achieve the following specific objectives. Evidence from pakistani commercial banks ihtesham khan.
A read is counted each time someone views a publication summary such as the title, abstract, and list of authors, clicks on a figure, or views or downloads the fulltext. According to our dynamic panel estimates, the following variables are found to significantly affect npl ratios. Group g bharat singh bhul bikash khatri kirti khadka sandeep dhakal l. Determinants of non performing loans the case of ethiopian. According to the international monetary fund imf, 2009, a non performing loan is any loan in which interest and principal payments are more than 90 days overdue. University of cape town,faculty of commerce,department of finance and tax.
The study used macroeconomic and bank specific factors to identify the determinants of npls of jordanian banks. Determinants of non performing loans among commercial banks. Pdf the determinants of nonperforming loan portfolio in. It is in the light of this that the paper examines the determinants of non performing loans in nigeria. The issue of banks loan quality has assumed growing importance at the international level. Determinants of non performing loans the case of ethiopian banks. The study is motivated by the hypothesis that both macroeconomic and regionalspecific variables have an effect on loan quality. Sinkey and greenwalt 1991 and gambera 2000 also studied the determinants. On top of the bank and countryspecific variables proposed by the literature the roles of income tax and output gap are for the first time examined and found to be significant. They use quarterly data for the period 2003 to 20 and a multivariate cointegration test to reveal that npls and real gdp, unemployment, inflation, loan interest rate and.
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