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Non-performing loans and Financial Development: New Evidence

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  • Ozili, Peterson K

Abstract

This paper examine the relationship between non-performing loans (NPLs) and financial (sector) development. The study is motivated by the scant knowledge on how financial development structures impact non-performing loans across banking sectors around the world. In the pooled full country empirical analysis, we find that (i) private credit to GDP ratio is positively associated with non-performing loans, (ii) NPLs are inversely associated with bank efficiency, loan loss coverage, banking competition and banking system stability, and (iii) NPL is positively associated with foreign bank presence, banking crises and bank concentration. We also find that efficient and stable banking sectors experience higher non-performing loans. In the regional empirical analysis, NPLs are negatively associated with regulatory capital ratio and bank liquidity while the graphical analysis show that NPLs are inversely related to financial development and profitability in several regions.

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  • Ozili, Peterson K, 2017. "Non-performing loans and Financial Development: New Evidence," MPRA Paper 75964, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:75964
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    References listed on IDEAS

    as
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    Cited by:

    1. Cândida Ferreira, 2022. "Determinants of Non-performing Loans: A Panel Data Approach," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 28(3), pages 133-153, November.
    2. Noel, Dorian M. & Bangwayo-Skeete, Prosper F. & Brei, Michael & Robinson, Justin, 2021. "Sovereign risk spill-overs in the banking sectors of Central America and the Caribbean," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 73(C).
    3. Imola Drigă, 2017. "Financial Intermediation after the Financial Crisis," Annals of the University of Petrosani, Economics, University of Petrosani, Romania, vol. 17(2), pages 43-50.
    4. Malik, Amina & Din, Shahab Ud & Shafiq, Muhammad & Butt, Babar Zaheer & Aziz, Haroon, 2019. "Earning Management and the Likelihood of Financial Distress in Banks — Evidence from Pakistani Commercial Banks," Public Finance Quarterly, Corvinus University of Budapest, vol. 64(2), pages 208-221.
    5. Marwa Elnahass & Mohamed Marie & Mohammed Elgammal, 2022. "Terrorist attacks and bank financial stability: evidence from MENA economies," Review of Quantitative Finance and Accounting, Springer, vol. 59(1), pages 383-427, July.
    6. Fatima Zohra Marouf & Zeyneb Guellil, 2017. "The Macroeconomic Determinants of Credit Risk: The Algerian Banking System," MIC 2017: Managing the Global Economy; Proceedings of the Joint International Conference, Monastier di Treviso, Italy, 24–27 May 2017,, University of Primorska Press.
    7. Alin Marius ANDRIEȘ & Sabina CAZAN & Nicu SPRINCEAN, 2022. "The Nexus between Bank M&As and Financial Development," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 5-28, April.

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    More about this item

    Keywords

    Non-performing loans; credit risk; financial development; banking crisis; foreign banks; financial intermediation; banking sector development; efficiency; liquidity; asset quality; bank concentration; banking stability; Sub-saharan Africa; MENA; Europe; Asia-Pacific; Latin America;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G1 - Financial Economics - - General Financial Markets
    • 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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