A case study of commercial bank of africa cba kenya by nasieku nkurrunah a project report submitted to the chandaria school of business in. The variables were chosen based on findings from the previous literatures. The panel econometric modelcontrolling for macroeconomic and firmlevel variablesfinds an appreciation in the real effective exchange rate increasing npls and gdp growth decreasing npls. A generalized method of moments gmm approach using micro level data abstract akeem rahaman, timmy baksh, reshma mahabir, dhanielle smith1 the incidence of non performing loans npl, which is usually, expressed a percentage of total loans, can be used as an indicator of credit quality. Crdb bank offers a comprehensive range of corporate, retail, business, treasury, premier, and microfinance services. Macro and micro determinants of the nonperforming finance.
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. Their findings indicated that construction and investment expenditure, unemployment and inflation. These countries have faced financial problems after the subprime crisis on 2008. This study intends to assess determinants of nonperforming loans. Based on the above, this paper investigates the determinants of non performing loans in the jordanian banking. Performing loans, pakistan 1 full installment of primary and intrigue is never again expected, 2 standard or intrigue is 90 days or 1. The effect of nonperforming loans on the financial. Evidence from pakistani commercial banks ihtesham khan. Crdb bank plc is a whollyowned private commercial bank in tanzania. The determinants of nonperforming loan portfolio in the argentine banking system. Determinants of non performing loans in commercial banks. 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. Determinants of non performing loans the case of ethiopian. Case study on development bank of ethiopia central region arega seyoum asfaw, hanna nigussie bogale, tadele tesfay teame college of business and economics, jimma university, jimma ethiopia development bank.
Non performing loans, determinants, npls, banks, writeoffs. Determinants of non performing loans in trinidad and tobago. Econometric model of nonperforming loans determinants. Micro and macro determinants of nonperforming loans 859 bikker, j. Highlights we examine the determinants of non performing loans npls in the greek banking sector separately for each category of loan. The present study examines statelevel bankingindustry specific as well as region economic determinants of nonperforming loans for all commercial banks and savings institutions across 50 us states and the district of columbia for 198420.
Using a set of time series data from q12006 to q42015, autoregressive distributed lag ardl. 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. Npl, commonly known as loans in arrears for at least 90 days, lead to a rapid. The paper investigated the determinants of nonperforming loans npls in commercial banks in ethiopia in the period of 20072016. Nonperforming loan npl and bank loan bkln growth in bangladesh in billion usd source. 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. Pdf micro and macro determinants of nonperforming loans. Assessment of the determinants of nonperforming loans the case. Zurairah bt isahak research report submitted in partial fulfillment of the requirements for the degree of master of business administration june 2010. Macroeconomic and bankspecific determinants of non. Against this background, the objective of this study is twofold.
Empirical determinants of the nonperforming loans in the. Sinkey and greenwalt 1991 and gambera 2000 also studied the determinants. However, in order to control non performing loans, it is necessary to understand its roots causes. 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. 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.
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 study used macroeconomic and bank specific factors to identify the determinants of npls of jordanian banks. On the other hand the basel committee 12001 puts non performing loans as loans left unpaid for a period of 90 days. The case of eurozone vasiliki makri university of patras, department of business administration, greece athanasios tsagkanos university of patras, department of business administration, greece. The mixed research approach was adopted for the study. In recent years, the interest in nonperforming loans and their determinants has great ly increased, since we. Determinants of the non performing loans of commercial banking institutions in malaysia by. A bank loan is considered nonperforming when more than 90 days pass without the borrower paying the agreed instalments or interest. A performing loan will provide the bank with the interest income it needs to make a profit and extend new loans, while a nonperforming loan, generally speaking, will not. This paper empirically studies the macroeconomic factors determining the non performing loans npls of the banking and financial institutions in malaysia. Macroeconomic and bank specific determinants of non. In the case of exchange rates, the direction of the effect. 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. Tables, percentages, mean and standard deviation were used to analyze data.
The macroeconomic variables in the study include annual inflation rate, real effective exchange rate reer, and annual growth in real gdp over the period of analysis. Pdf the study attempts to ascertain the determinants of nonperforming loans in the guyanese banking sector using a panel dataset and a fixed effect. The impact of nonperforming loans and bank performance in. Assessing banks internal factors as determinants of non. Assessing banks internal factors as determinants of non performing loans. University of cape town,faculty of commerce,department of finance and tax. The study attempts to ascertain the determinants of nonperforming loans in national bank of commerce. 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. The results reveal that return on assets, return on equity, loan to total asset ratio, log of total assets are the main determinants of non performing loans.
What are the determinants of nonperforming loans in botswana. Npls can be explained by macroeconomic variables and management quality. 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. There are lots of factors responsible for this ratio. 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. Consistent with international evidence we find that the real effective exchange rate has a significant positive impact on non performing loans.
A straightforward meaning of nonperforming keywords. This paper examines the determinants of nonperforming loans npl in kazakhstan banking sector for aggregate volume of bad loans. The impact of macroeconomic determinants on nonperforming. The effect of non performing loans on the financial performance of commercial banks in ethiopia. Macro and micro determinants of the non performing finance. Determinants of nonperforming loans in guyana springerlink. The study shows a down ward sloping of nonperforming loans for commercial banks in ethiopia. The sample comprises 29 banks over the period from 2007 to 2014. Khemraj and pasha 2009 study the determinants of non performing loans in the guyanese banking sector for 1994 to 2004 period. Loans are the main asset class from which banks generate their major portion of income and also signify the greatest risk to banks. Using a dynamic panel model, we assess the determinants of the evolution of bank. Determinants of nonperforming loans in chinese banks. It is motivated by the hypothesis that macroeconomiccyclical indicators, monetary aggregates, interest rates, financial markets, and bankspecific variables influence the nonperforming loans in the romanian banking system.
Investigating the determinants of nonperforming loans in the. In particular, it investigates the impact of macroeconomic and bank specific factors on the volume of npl. Furthermore, fixed effect model was used to examine the determinants of npls. 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. It is in the light of this that the paper examines the determinants of non performing loans in nigeria. A new dataset and a nonparametric methodology permit a detailed look at the many factors which affect the pricing of bank loans, clarifying the weight and significance of each. Determinants of nonperforming loans clute journals. Empirical investigation of bankspecific microeconomic factors of npls with respect to. 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. The study is motivated by the hypothesis that both macroeconomic and bankspecific variables have an effect on loan quality and that. However, in recent times, the banks have become very cautious in extending loans due to non performing.
The impact of nonperforming loans and bank performance. Macroeconomic and institutional determinants of non performing loans 49 rates of npl ratios and the highest share of npl 31. Notably, studies in this regard with respect to the small developing countries banking sector have received less attention. Determinants of non performing loans the case of ethiopian banks. The growing literature on credit risk determinants provides results that are based on the set of bad loans present in the banks assets especially non performing loans. A performing loan will provide a bank with the interest income it needs to make a profit and extend new loans. This research is an explanatory research design that identifies the cause and effect relationships between the npls and its determinants. Nonperforming loans can cause problems for banks, and even threaten their overall health. Group g bharat singh bhul bikash khatri kirti khadka sandeep dhakal l. 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.
Data collection methods adopted for the study were interview, questionnaire and documentary evidence. 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. Determinants of nonperforming loan facility in commercial. The detrimental effect nonperforming loans npls have on banks income and the economy makes it necessary to examine the determinants of npls in the banking industry in ghana. The purpose of this study is to find the determinants of bank non performing loan in the context of pakistan.
Character of a loanee was most considered when appraising loan applications being one of the characteristics included in the credit scoring card. Pdf macroeconomics determinants of nonperforming loans. Factors affecting nonperforming loans in commercial bank. Exploiting crosscountry variation in non performing loan trends is likely to yield more robust results than an analysis of individual countries.
A non performing loan is taken as both the independent and dependent variable. Determinants of nonperforming loans in banking sector in. This study investigates the factors affecting non performing loans of commercial bank of ethiopia during the period from 2002 to 2015. Bank nonperforming loans to total gross loans % for selected countries 200620. 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. Resolving non performing loans in europe executive summary 3 this report was prepared by the esrb expert group on non performing loans, a substructure under the advisory technical committee, which was mandated to identify macroprudential policy oriented issues related to non performing loans npls and to. This secondary study used panel data of 39 banked across 6 years 20062011 in pakistan. Differences in the quantitative impact of macroeconomic factors among loan categories are evident. Interest rate, gdp, concentration of lending activities, banks loan. Determinants of the level of nonperforming loans in. Nonperforming loans sensitivity to macro variables.
Specifically, the study attempted to achieve the following specific objectives. 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. Among the bankspecific determinants, non performing loans npl, t1 indicate a significant positive relationship with. Determinants of nonperforming loans in central and eastern. In this paper the authors examine the determinants of npl ratio using a crosscounty analysis from the sample of 25 emerging countries. Industryspecific and macroeconomic determinants of non. Survey was conducted with professionals engaged in both private and state owned banks in ethiopia holding different positions using a self administered questionnaire. The recent rise of nonperforming loans npls in some asian economies calls for close analysis of the determinants, the potential macrofinancial feedback effects, and the implications for financial stability in the region.
Regionalspecific determinants of nonperforming loans by. The issue is so serious that the kenya government decided to include treatment of nonperforming loans in the sacco act to guide saccos on provision and reporting of such items in the financial report. Determinants of the level of non performing loans in commercial banks of transition countries 4 1. Hence, the factors which explain the problem loans are very useful information for banks. 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. In specific terms, a negative relationship between non performing loans and return on assets as well as return on equity was found.
The study attempts to ascertain the determinants of non performing loans in the guyanese banking sector using a panel dataset and a fixed effect model similar to jimenez and saurina 2005. Using a novel panel data set we study the macroeconomic determinants of nonperforming loans npls across 75 countries during the past decade. 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. Determinants of nonperforming loans in trinidad and tobago. Nonperforming loans european central bank european union. The study aims to explore macroeconomic and banking industryspecific determinants of non performing loans npls for chinese banks, spanning from 2005 to 2014.
This paper investigates the determinants of non performing loans in the armenian banking sector during the period 20042016. Determinants of nonperforming loans in ghana banking industry. 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. If the borrower stops paying back the loan or the interest, after a specific amount of time the bank must classify the loan as a bad debt or nonperforming. Pdf determinants of loan repayment in commercial banks. The event of the global financial crisis has proved and revealed that external funding. Using the static panelbased approach the non performing loan npl determinants for the period from 2011 to 2017 were analyzed. This paper uses dynamic panel data methods to examine the determinants of non performing loans npls in the greek banking sector, separately for each type of loan consumer, business and mortgage loans. Determinants of non performing loans among commercial banks.
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. They further explained that if the loans principal and payment of interest overdue by 90 days, it may be regarded as nonperforming loan. Therefore, this study aims to examine the determinants of npls with a case of. This paper aims to investigate the determinants of nonperforming loans in the romanian banking sector by means of time series modelling. Pdf determinants of nonperforming loan in nepalese. Evaluating the impact of bank specific determinants of non. 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 zimbabwe 24%, nigeria 11% and south africa 3% cbk, 2001. Determinants of non performing loan on ethiopian commercial banks.
Pdf examining of determinants of nonperforming loans. The banking sector stability depends in large part on the size of non performing loans npls. 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. Their study showed that a substantial part of the variation in loan losses practice 38 1 3759 2014 40 ped the concept of the. Micro and macro determinants of non performing loans. Javid 20 state that a loan is considered as nonperforming if default or closed to being in default. The study is motivated by the hypothesis that both macroeconomic and regionalspecific variables have an effect on loan quality. In fact, time series for non performing loans are typically short, often covering, at most. As a result, it was clear that all banks loan books contained a significant level of non performing loans.
This paper investigates the determinants of nonperforming loans in the. Pdf the determinants of nonperforming loan portfolio in. A mixed research approach and explanatory design were adopted in. According to our dynamic panel estimates, the following variables are found to significantly affect npl ratios. What are the determinants of non performing loans in botswana thesis. This paper examine the relationship between nonperforming loans npls and. Since in these researches, non performing loan ratio is used as a risk indicator. Besides this classic proxy, the present paper examines the determinants of loan quality deterioration by using a qualitative measure. Regionalspecific determinants of nonperforming loans by sergey.
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