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The Determinants of Non-performing Loans: Dynamic Panel Evidence from South Asian Countries

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  • Md. Shahidul ISLAM
  • Shin-Ichi NISHIYAMA

Abstract

Using the GMM estimator, this paper empirically studies the bank-specific, industry specific and macroeconomics specific determinants of non-performing loans of banks in the South Asian countries (Bangladesh, India, Nepal and Pakistan) for the period of 1997-2012. We found that moral hazard problems between the bank management and the depositors in addition to that between the bank management and the shareholders; and the adverse selection of borrowers by the bank significantly affect the bank credit risk. We also found evidence that bad management, cost inefficiency, income diversification, bank size, industry concentration ratio, inflation and GDP growth rate all significantly explain the levels of bank NPLs. Empirical results show a moderate degree of persistence of NPLs and a late-hit of the global financial crisis in the banking sector of the region.

Suggested Citation

  • Md. Shahidul ISLAM & Shin-Ichi NISHIYAMA, 2016. "The Determinants of Non-performing Loans: Dynamic Panel Evidence from South Asian Countries," DSSR Discussion Papers 64, Graduate School of Economics and Management, Tohoku University.
    • Handle: RePEc:toh:dssraa:64
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    1. Karaś, Marta Anita & Boda, Michał, . "Stabilność i wyniki finansowe banków w krajach Europy graniczących z konfliktem militarnym w Ukrainie," Gospodarka Narodowa-The Polish Journal of Economics, Szkoła Główna Handlowa w Warszawie / SGH Warsaw School of Economics, vol. 2024(2).
    2. Mohammad Ziaul Islam & Shormin Aktar & Mohammad Awal Hossen & Mohammad Mohammad Saiful Islam, 2018. "Non-Performing Loan And Asset Utilization Of Banks: Evidence From Bangladesh," Romanian Economic Business Review, Romanian-American University, vol. 13(4), pages 31-39, december.
    3. Michael Adusei, 2022. "The liquidity risk–financial performance nexus: Evidence from hybrid financial institutions," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(1), pages 31-47, January.
    4. Odunayo Magret Olarewaju, 2020. "Investigating the factors affecting nonperforming loans in commercial banks: The case of African lower middle‐income countries," African Development Review, African Development Bank, vol. 32(4), pages 744-757, December.
    5. Koju Laxmi & Abbas Ghulam & Wang Shouyang, 2018. "Do Macroeconomic Determinants of Non-Performing Loans Vary with the Income Levels of Countries?," Journal of Systems Science and Information, De Gruyter, vol. 6(6), pages 512-531, December.

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