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How Bank Managers Anticipate Non-Performing Loans Evidence from Europe, US, Asia and Africa

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  • P. K. Ozili

Abstract

This study extends the literature on the determinants of NPL. I investigate whether banks anticipate non-performing loans by making balance sheet adjustments. This study draws insight into the actions taken by credit risk management teams and bank managers to minimize the size of non-performing loans. After examining 82 banks from US, Europe, Asia and Africa, the result indicate that banks adjust the level of loan loss reserves and loan growth to minimize the size of NPLs. Our results do not show evidence that loan diversification minimizes NPLs. Further, I find that banks in developing countries reduce loan growth when they expect high NPL while banks in developed countries do not anticipate the level of NPL by adjusting loan growth. Further, I find that post-crisis Basel regulation did not lead to a decrease in the size of NPLs among banks in developed countries but appear to minimize NPLs in some developing countries. Overall, the significance and predictive power of each bank-specific factor (excluding loan diversification), regulatory variable and macroeconomic indicator in explaining NPLs depends on regional factors (less significantly) and country-specific factors (more significantly).

Suggested Citation

  • P. K. Ozili, 2015. "How Bank Managers Anticipate Non-Performing Loans Evidence from Europe, US, Asia and Africa," Applied Finance and Accounting, Redfame publishing, vol. 1(2), pages 73-80, August.
  • Handle: RePEc:rfa:afajnl:v:1:y:2015:i:2:p:73-80
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    Citations

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    Cited by:

    1. Dimitrios Anastasiou & Helen Louri & Mike Tsionas, 2019. "Nonperforming loans in the euro area: Are core–periphery banking markets fragmented?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 24(1), pages 97-112, January.
    2. Dhanonjoy Kumar & Md. Zakir Hossain & Md. Saiful Islam, 2020. "Non-Performing Loans in Banking Sector of Bangladesh: An Evaluation," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 6(1), pages 22-29.
    3. Anastasiou, Dimitrios, 2017. "Is ex-post credit risk affected by the cycles? The case of Italian banks," Research in International Business and Finance, Elsevier, vol. 42(C), pages 242-248.
    4. Tomasz Korol, 2021. "Examining Statistical Methods in Forecasting Financial Energy of Households in Poland and Taiwan," Energies, MDPI, vol. 14(7), pages 1-14, March.
    5. Ozili, Peterson K, 2017. "Non-performing loans and Financial Development: New Evidence," MPRA Paper 75964, University Library of Munich, Germany.
    6. Dimitrios, Anastasiou & Helen, Louri & Mike, Tsionas, 2016. "Determinants of non-performing loans: Evidence from Euro-area countries," Finance Research Letters, Elsevier, vol. 18(C), pages 116-119.
    7. Billio, Monica & Dufour, Alfonso & Segato, Samuele & Varotto, Simone, 2023. "Complexity and the default risk of mortgage-backed securities," Journal of Banking & Finance, Elsevier, vol. 155(C).

    More about this item

    Keywords

    Non-performing Loans; Credit risk; Macroeconomic determinants; Bank specific determinants; Banking;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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