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Determinants of Non-performing Loans: A Comparative Study of Pakistan, India, and Bangladesh

Author

Listed:
  • Muhammad Waqas

    (Department of Management Science, Capital University of Science and Technology, Islamabad, Pakistan)

  • Nudrat Fatima

    (Department of Management Science, Capital University of Science and Technology, Islamabad, Pakistan)

  • Aryan Khan

    (Department of Management Science, Capital University of Science and Technology, Islamabad, Pakistan)

  • Muhammad Arif

    (Assistant Professor, Department of Management Science, Govt. College of Management Sciences, Swabi, Pakistan)

Abstract

The aim of the empirical study is to investigate credit risk determinants in banking sectors across three kinds of South Asian economies. An accumulated sample of 105 unbalanced panel data of financial firms over the period of 2000-2015, by applying General Method of Moment (GMM) estimation techniques one-step at the difference in order to identify factors influencing credit risk. This study is inspired by two broad categories of explanatory variables which are bank-specific and macroeconomic. Bank-specific factors influencing unsystematic risk, while macroeconomic factors promoting systematic risk. The study uses a proxy of non-performing loans for credit risk in banking sectors of Pakistan, India, and Bangladesh. The empirical results have been found aligned with theoretical arguments and literature as expected. In comparison, NPLs in Pakistan is greater than India and Bangladesh, whileIndia has the lowest ratio of non-performing loans. The study documents that bank-specific factors (inefficiency, profitability, capital ratio and leverage) have a significant contribution towards credit risk. Further, the study also finds a significant impact of macroeconomic variables on non-performing loans. While, the result in the case of Bangladesh predictscontradictionsthat have no significant effect on non-performing loans at various levels. The overall results indicate that credit risk is not influenced by only external factors but also affect by internal factors like bad management and skimping etc.

Suggested Citation

  • Muhammad Waqas & Nudrat Fatima & Aryan Khan & Muhammad Arif, 2017. "Determinants of Non-performing Loans: A Comparative Study of Pakistan, India, and Bangladesh," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 6(1), pages 51-68, January.
    • Handle: RePEc:rbs:ijfbss:v:6:y:2017:i:1:p:51-68
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    References listed on IDEAS

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    Cited by:

    1. Shahab Ud Din & Muhammad Yar Khan & Majid Jamal Khan & Memoona Nilofar, 2022. "Nexus Between Sustainable Development, Adjusted Net Saving, Economic Growth, and Financial Development in South Asian Emerging Economies," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 13(3), pages 2372-2385, September.
    2. Momtaj Parvin & Merajul Islam & Larysa Vdovenko, 2023. "Impact of Non-Performing Loans on the Growth of the Banking Sector in Bangladesh," Oblik i finansi, Institute of Accounting and Finance, issue 1, pages 79-90, March.
    3. Mohammad Motasem ALrfai & Danilah Binti Salleh & Waeibrorheem Waemustafa, 2022. "Empirical Examination of Credit Risk Determinant of Commercial Banks in Jordan," Risks, MDPI, vol. 10(4), pages 1-11, April.

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