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Is the relationship between lending interest rate and non-performing loans nonlinear asymmetric ? Malaysian evidence

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  • Athirah, Wan
  • Masih, Mansur

Abstract

This paper addresses the question whether the relationship between lending interest rate and non-performing loans is nonlinear asymmetric or not. Lending interest rate has an inherent implicit cost on the credit issued by banks with implication on loan defaults. In this regard, high level of non-performing loans ( NPLs) will depress economic growth owing to many banks refusing to lend. This paper makes the initial attempt to test the non-linear asymmetric relationships between lending interest rate and NPLs by using the NARDL approach and provides a direction of Granger causality between the lending interest rate and NPLs. Malaysia is used as a case study. The finding tends to indicate that lending interest rate and NPLs has an asymmetric relationship in the short-run and symmetric relationship in the long-run. This paper suggests that banks can improve their quality credit management by streamlining their collection process and the quality of customers in order to reduce the number of NPLs in the short-run. Besides, banks can keep their total risk low by diversifying their loan portfolios.

Suggested Citation

  • Athirah, Wan & Masih, Mansur, 2018. "Is the relationship between lending interest rate and non-performing loans nonlinear asymmetric ? Malaysian evidence," MPRA Paper 114370, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:114370
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    References listed on IDEAS

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    6. Louzis, Dimitrios P. & Vouldis, Angelos T. & Metaxas, Vasilios L., 2012. "Macroeconomic and bank-specific determinants of non-performing loans in Greece: A comparative study of mortgage, business and consumer loan portfolios," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1012-1027.
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    Cited by:

    1. Dan Costin NIȚESCU & Cristian ANGHEL, 2023. "Impact of Macroeconomic and Banking Indicators on Lending Rates - A Global Perspective," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 64-77, March.

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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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