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The determinants of non-performing loans: an econometric case study of Guyana

Listed author(s):
  • Khemraj, Tarron
  • Pasha, Sukrishnalall
Registered author(s):

    The study attempts to ascertain the determinants of non-performing loans in the Guyanese banking sector using a panel dataset and a fixed effect model similar to Jimenez and Saurina (2005). Consistent with international evidence we find that the real effective exchange rate has a significant positive impact on non-performing loans. This indicates that whenever there is an appreciation in the local currency the non-performing loan portfolios of commercial banks are likely to be higher. Our empirical results show that GDP growth is inversely related to non-performing loans, suggesting that an improvement in the real economy translates into lower non-performing loans. We also find that banks which charge relatively higher interest rates and lend excessively are likely to incur higher levels of non-performing loans. However, contrary to previous studies, our evidence does not support the view that large banks are more effective in screening loan customers when compared to their smaller counterparts.

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    File URL: https://mpra.ub.uni-muenchen.de/53128/1/MPRA_paper_53128.pdf
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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 53128.

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    Date of creation: Aug 2009
    Handle: RePEc:pra:mprapa:53128
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    1. William R. Keeton & Charles S. Morris, 1987. "Why do banks' loan losses differ?," Economic Review, Federal Reserve Bank of Kansas City, issue May, pages 3-21.
    2. Vicente Salas & Jesús Saurina, 2002. "Credit Risk in Two Institutional Regimes: Spanish Commercial and Savings Banks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 22(3), pages 203-224, December.
    3. Sorge, Marco & Virolainen, Kimmo, 2006. "A comparative analysis of macro stress-testing methodologies with application to Finland," Journal of Financial Stability, Elsevier, vol. 2(2), pages 113-151, June.
    4. Marco Sorge, 2004. "Stress-testing financial systems: an overview of current methodologies," BIS Working Papers 165, Bank for International Settlements.
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