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Macroeconomic determinants of non-performing loans in Mongolia: the influence of currency mismatch and bank size

Chuluunbayar, Delgerjargal (2020): Macroeconomic determinants of non-performing loans in Mongolia: the influence of currency mismatch and bank size.

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Abstract

Non-performing loans (NPLs) is leading indicator of financial system health. Understanding the determinants of credit quality is essential to conducting stress test and macro prudential policy. The macroeconomic determinants of NPLs have been found to differ between countries and are potentially sensitive to model specification, particularly a mismatch between the loan currency (foreign/domestic) and sector orientation (tradeable/non-tradeable). This paper examines the macro-determinants of NPLs in Mongolia using monthly panel data for 14 banks between December 2003 and December 2019. Using a system GMM approach for the overall sample and subsamples isolating systemically important banks, I find foreign currency loan quality to be more sensitive to macroeconomic variables and big banks more exposed to the currency mismatch problem.

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