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Analysis of Factors Affecting the Loan Growth of Banks with a Focus on Non-Performing Loans

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  • Se-Hak Chun

    (Department of Business Administration, Seoul National University of Science and Technology, 232 Gongneung-ro, Nowon-gu, Seoul 01811, Republic of Korea)

  • Namnansuren Ardaaragchaa

    (Department of Business Administration, Seoul National University of Science and Technology, 232 Gongneung-ro, Nowon-gu, Seoul 01811, Republic of Korea)

Abstract

The purpose of this paper is to investigate the intertemporal relationship between the non-performing loan ratio and bank lending and to analyze factors affecting loan growth using data from Mongolian commercial banks. There has been a lack of research on Mongolian banks’ lending behavior due to their short history. Thus, this paper investigates the effect of the non-performing loan ratio on total loan growth using an ordinary least squares (OLS) regression model with panel data. We used bank-related variables such as the loan-to-deposit ratio, provision-to-gross loan portfolio ratio, equity-to-asset ratio, and liquidity ratio, and economic variables such as the real gross domestic product (GDP) growth rate, interest rate, and inflation rate. The results of this paper show that non-performing loans have a significant negative impact on total loan growth. The implication of this result is that non-performing loans affect banking efficiency, which, in turn, affects financial stability and the real economy. Moreover, high non-performing loans reduce banks’ profits. Also, this paper found that loss reserve and the liquidity ratio have a positive effect on total loan growth, while the effects of the loan-to-deposit ratio and the equity capital ratio were not found to be significant. Additionally, from a macro perspective, the inflation rate has a positive effect on the total loan growth rate, while the interest rate has a positive effect on total loan growth rather than a negative effect. And real gross domestic product (GDP) growth does not affect the total loan growth rate.

Suggested Citation

  • Se-Hak Chun & Namnansuren Ardaaragchaa, 2024. "Analysis of Factors Affecting the Loan Growth of Banks with a Focus on Non-Performing Loans," JRFM, MDPI, vol. 17(5), pages 1-9, May.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:5:p:203-:d:1394005
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    References listed on IDEAS

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    2. Carlson, Mark & Shan, Hui & Warusawitharana, Missaka, 2013. "Capital ratios and bank lending: A matched bank approach," Journal of Financial Intermediation, Elsevier, vol. 22(4), pages 663-687.
    3. Gambacorta, Leonardo & Mistrulli, Paolo Emilio, 2004. "Does bank capital affect lending behavior?," Journal of Financial Intermediation, Elsevier, vol. 13(4), pages 436-457, October.
    4. Nir Klein, 2013. "Non-Performing Loans in CESEE: Determinants and Impact on Macroeconomic Performance," IMF Working Papers 2013/072, International Monetary Fund.
    5. Matteo Alessi & Stefano Di Colli & Juan Sergio Lopez, 2014. "Loan Loss Provisioning and Relationship Banking in Italy: Practices and Empirical Evidence," Journal of Entrepreneurial and Organizational Diversity, European Research Institute on Cooperative and Social Enterprises, vol. 3(1), pages 111-129, June.
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