Macroeconomic and Bank Specific Covariates of Non-Performing Loans (NPLs) in Pakistani Commercial Banks: Panel Data Evidence

Mehmood, Bilal; Younas, Zahid Irshad; Ahmed, Nisar

doi:10.24191/jeeir.v1i3.9128

Cited by 7 publications

(6 citation statements)

References 14 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…Banking data are retrieved from balance sheets and income statements of the individual banks. Nine different types of banks are used for analysis from the time period ranging from (Badar and Yasmin Javid, 2013;Mehmood et al, 2013;Jameel, 2014). Studies on assessing NPLs considering data from recent years are lacking.…”

Section: Methodsmentioning

confidence: 99%

Determinants of non-performing loans in the banking sector in developing state

Khan

Siddique

Sarwar

2020

AJAR

113

View full text Add to dashboard Cite

PurposeThe size of non-performing loans (NPLs) plays a key role in the stability of the banking sector of a country. The factors that explain the NPLs contain very important information for banks. Studies in this regard with respect to developing states such as Pakistan have received little attention. This study aimed to scrutinize the determinants of NPLs observing a case of the banking sector in Pakistan over the period from 2005 to 2017.Design/methodology/approachThe sample consists of the banking sector (i.e., commercial banks) listed in Pakistan Stock Exchange over the period of 2005–2017. The banking factors, including profitability, operating efficiency, capital adequacy and income diversification, were evaluated. The estimations were done by regression modeling using random and fixed effects through STATA software.FindingsResults show that the operating efficiency and profitability indicators have a negative association with NPLs but were statistically significant, while capital adequacy and income diversification have a negative association with NPLs but were statistically insignificant.Research limitations/implicationsThe present study has considered limited banking indicators as determinants of NPLs and was limited to a specific time period from 2005 to 2017.Originality/valueThe study is an attempt to investigate various banking factors that affect the NPLs with respect to developing economies such as Pakistan.

show abstract

Section: Methodsmentioning

confidence: 99%

Determinants of non-performing loans in the banking sector in developing state

Khan

Siddique

Sarwar

2020

AJAR

113

View full text Add to dashboard Cite

show abstract

“…Floating interest rates also affect NPLs as higher interest rates tend to lead to a higher difficulty of borrowers to repay their debt obligations. Many studies showed that interest rates possess a significant positive effect with NPLs, where debt amount increases as interest rates increase, resulting in a rise in NPLs (Erdo gdu, 2016;Mehmood et al, 2013;Bofondi and Ropele, 2011;Rinaldi, 2006;Fofack, 2005;Khemraj and Pasha, 2009;Jimenez and Saurina, 2006). Many of the previous empirical studies showed that interest rate had IJHMA 15,5 been significant in affecting NPLs, despite the passage of different macroeconomic environments.…”

Section: Review Of Literaturementioning

confidence: 99%

Dynamic implications of GDP, interest rates, taxes, income, foreign direct investments, housing prices on property NPLs

Tham¹,

Said²,

Adnan³

2021

IJHMA

View full text Add to dashboard Cite

Purpose The study on how macroeconomic factors affect non-performing loans (NPLs) have not been focussed on property loans, which had been amongst the largest contributor of NPLs in many countries. At the same time, whilst there are many studies that focusses on NPLs during the recession and financial crises, not many studies focus on how macroeconomic factors affect property NPLs in a recovering economic environment. The purpose of this study seeks to fill the gap by analysing the relationships between gross domestic product (GDP), interest rates, income, foreign direct investments (FDI), housing prices and taxes on property NPLs with Malaysia as a case study in which NPLs rose for the first time after declining for almost a decade since the 2008–2009 global financial crisis. This study aims to understand the dynamics and direction of causation in relationships. Design/methodology/approach The author uses the auto regressive distribution lag analysis between the independent variables of GDP, interest rates, housing prices, service taxes, percapita income and FDI affecting the dependent variable of property NPLs from 2009 to 2017, during a unique period of recovering economic environment where NPLs rose for the first time in almost a decade of decline. Findings This study found that interest rates, housing prices, income, GDP and service taxes were found to possess long cause effects and long run elasticity with NPLs. At the same time, interest rates were found to implicate property NPLs significantly in longer periods, followed by GDP, housing prices, service taxes and income. FDIs were found to be insignificantly negative in implicating property NPLs in the long run. Research limitations/implications This paper allows policymakers to understand the dynamic implications of crucial macroeconomic factors in affecting NPLs so that appropriate strategic monetary policies could be formulated towards addressing them. More focus shall be given to addressing the long term implications of these factors on NPLs. Practical implications Appropriate strategic monetary policy making can be channelled towards addressing these factors via understanding the short and long term implications of macroeconomic variables on property NPLs. Policymakers can take note of the long cause effects and long run elasticity of average interest rates, housing prices, income levels, GDP and service taxes with property NPLs so that appropriate long term policies can be addressed to control the rise of property NPLs in the country. At the same time, priority should be given towards strengthening of the GDP of the country due to its strongest impact in long term effects with reduction of NPLs in the country. Social implications The insights from the present study suggest policymakers interested in bringing stability in the real estate finance system need to account for the various macroeconomic variables found in this study. Originality/value The paper is novel on at least two dimensions. First, this study involves focussing on a unique period of recovering economic environment where NPLs rose for the first time after a decade of decline since recovering from the 2008–2009 global financial crisis. At the same time, this study focusses on property NPLs, which is unique in nature compared to general NPLs. This study had enabled policymakers to better understand the dynamic implications of several macroeconomic variables affecting property NPLs and assist them in strategic monetary policy making.

show abstract

“…Further, authors' recommendations imply creating a healthy macroeconomic environment in order to reduce level of non-performing loans in Pakistan commercial banks. The emphasis is also on adequate credit culture and lending policy designed in accordance with appropriate economical and financial factors (Mehamood et. al., 2013).…”

Section: Literature Reviewmentioning

confidence: 99%

Effects of Macroeconomic Environment on Non-Performing Loans and Financial Stability: Case of Bosnia and Herzegovina

Kozarić

Dželihodžić²

2020

Journal of Central Banking Theory and Practice

View full text Add to dashboard Cite

This paper analyses the impact of macroeconomic conditions on non-performing loans and financial stability in Bosnia and Herzegovina`s banking sector. The aim of this paper is to identify the effects of macroeconomic conditions on non-performing loans and the banking sector`s financial stability. To that end, data for the period 2006-2017 have been used. In order to detect the correlations between analysed variables, we performed the correlation analysis through Pearson coefficient of correlation. Results have confirmed the assumption about correlation between macroeconomic conditions, non-performing loans, and financial stability. Further, regression analysis was applied on data divided into two models: the impact of macroeconomic conditions on non-performing loans and the impact of macroeconomic conditions on the banking sector`s financial stability. Those two models point to the significance of macroeconomic environment for non-performing loans control and financial stability maintenance. Namely, the results have shown that improvement in macroeconomic conditions causes improvement in credit quality. Also, it was disclosed that better macroeconomic conditions ensure better conditions for maintenance of the banking sector`s financial stability.

show abstract

Macroeconomic and Bank Specific Covariates of Non-Performing Loans (NPLs) in Pakistani Commercial Banks: Panel Data Evidence

Cited by 7 publications

References 14 publications

Determinants of non-performing loans in the banking sector in developing state

Determinants of non-performing loans in the banking sector in developing state

Dynamic implications of GDP, interest rates, taxes, income, foreign direct investments, housing prices on property NPLs

Effects of Macroeconomic Environment on Non-Performing Loans and Financial Stability: Case of Bosnia and Herzegovina

Contact Info

Product

Resources

About