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The consequences of bank loan growth: Evidence from Asia

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  • Vithessonthi, Chaiporn

Abstract

How much of non-performing loans can be explained by loan growth? If an increase in loan growth leads to higher profitability but does not necessarily cause non-performing loans to increase in the short run, banks with (managerial) short-termism will be ex ante incentivized to grant more loans to increase short-run profitability. Based on a final sample of publicly listed banks in 17 countries in Asia during the period 1995–2014, I find that in loan growth is not correlated with profitability but is positively associated with non-performing loans. In addition, banking sector development is positively associated with non-performing loans. The positive effect of loan growth on non-performing loans is stronger during financial crisis periods than tranquil times. These insights have the crucial consequences for central banks and banking supervisory authorities.

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  • Vithessonthi, Chaiporn, 2023. "The consequences of bank loan growth: Evidence from Asia," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 252-270.
    • Handle: RePEc:eee:reveco:v:83:y:2023:i:c:p:252-270
    DOI: 10.1016/j.iref.2022.08.025
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    More about this item

    Keywords

    Asia; Financial crisis; Loan growth; Managerial short-termism; Non-performing loans; Profitability;
    All these keywords.

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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