IDEAS home Printed from https://ideas.repec.org/a/oap/ijaefa/v22y2025i2p204-219id2340.html
   My bibliography  Save this article

Loan Defaults and Bank Performance: Is it a Critical Condition for Banks’ Financial Health?

Author

Listed:
  • Dimakatso Sekwati

  • Oliver Takawira

  • Emmanuel Amo-Bediako

Abstract

The study explores the impact of loan defaults on the performance of banks in South Africa, applying a three-step panel data model within a quantitative research design. Loan defaults have been a topic of debate not only in South Africa but also globally. The study utilises 10 commercial banks with a timeframe that spans from 2012 to 2023. The Panel Autoregressive Distributed Lag Model (PARDL) estimation technique was applied to establish the relationship between loan default and bank’s performance in both long-and short-term. Findings from the study show that in a long run loan default has a negative and significant impact on banks’ performance in South Africa. Further, the study revealed that there exists a unidirectional causal linkage between loan default and banks’ performance. We conclude that banks need to use sound policies and regulations to manage and control loan default. These strategies include asset-based recovery plans, loan loss provisions, enhancing loan portfolio diversity, and fortifying regulatory compliance.

Suggested Citation

  • Dimakatso Sekwati & Oliver Takawira & Emmanuel Amo-Bediako, 2025. "Loan Defaults and Bank Performance: Is it a Critical Condition for Banks’ Financial Health?," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 22(2), pages 204-219.
    • Handle: RePEc:oap:ijaefa:v:22:y:2025:i:2:p:204-219:id:2340
    as

    Download full text from publisher

    File URL: https://onlineacademicpress.com/index.php/IJAEFA/article/view/2340/1151
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oap:ijaefa:v:22:y:2025:i:2:p:204-219:id:2340. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Heather Rothman (email available below). General contact details of provider: http://onlineacademicpress.com/index.php/IJAEFA/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.