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Impact of macroeconomic cyclical indicators and country governance on bank non-performing loans in Emerging Asia

Author

Listed:
  • Nurfilzah Arham

    (Universiti Teknologi MARA)

  • Mohd Shamlie Salisi

    (Universiti Teknologi MARA)

  • Rozita Uji Mohammed

    (Universiti Teknologi MARA)

  • Jasman Tuyon

    (Universiti Teknologi MARA)

Abstract

Non-performing loans (NPLs) is an important credit risk in Emerging Asia, namely China, Hong Kong, Indonesia, India, Malaysia, Philippines, Singapore, South Korea, Thailand, and Vietnam, for banks there trying to find ways to minimise this. This research extends previous works on macroeconomic cyclical model by examining the impact of macroeconomic cycle indicators and country governance on bank NPL. The paper introduces a new empirical model to analyse the role of country governance in mitigating the negative effects of macroeconomic cycles on bank credit risk. This study employs panel regression analysis methods to examine the relationship between microeconomics and governance variables on bank NPL through baseline and interactions models. The baseline analysis shows unemployment rate and real interest rate have a positive and significant impact on NPLs in the countries studied, while total external debt/GDP and inflation rate have a negative impact. The interaction analysis provides new insights on the role of country governance in minimising bank NPL risks. The findings point to the role of country governance and macroeconomic variables on reducing NPLs. This research adds to the body of knowledge on NPLs, specifically in the area of theory, practice and policy in Emerging Asia.

Suggested Citation

  • Nurfilzah Arham & Mohd Shamlie Salisi & Rozita Uji Mohammed & Jasman Tuyon, 2020. "Impact of macroeconomic cyclical indicators and country governance on bank non-performing loans in Emerging Asia," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 10(4), pages 707-726, December.
    • Handle: RePEc:spr:eurase:v:10:y:2020:i:4:d:10.1007_s40822-020-00156-z
    DOI: 10.1007/s40822-020-00156-z
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    2. Mohammad Abdullah & Mohammad Ashraful Ferdous Chowdhury & Ajim Uddin & Syed Moudud‐Ul‐Huq, 2023. "Forecasting nonperforming loans using machine learning," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 42(7), pages 1664-1689, November.
    3. Ozili, Peterson K, 2021. "Bank non-performing loans in the Fintech era," MPRA Paper 113467, University Library of Munich, Germany.

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    More about this item

    Keywords

    Bank credit risk; NPLs; Country governance; Emerging Asia; Macroeconomic cyclical indicators;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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