Non-performing loans and Financial Development: New Evidence

Ozili, Peterson K (2017): Non-performing loans and Financial Development: New Evidence.

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.

• Item Type: MPRA Paper
• Language: English
• 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
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook; G - Financial Economics > G1 - General Financial Markets; G - Financial Economics > G2 - Financial Institutions and Services; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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