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Economic policy uncertainty, bank nonperforming loans and loan loss provisions: are they correlated?

Ozili, Peterson K (2022): Economic policy uncertainty, bank nonperforming loans and loan loss provisions: are they correlated? Published in:

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Abstract

This paper investigates the correlation of economic policy uncertainty (EPU) with nonperforming loans and loan loss provisions for 22 developed countries from 2008 to 2017. The findings reveal that economic policy uncertainty is negatively correlated with nonperforming loans and loan loss provisions in the banking sector of EU countries. Also, economic policy uncertainty is negatively correlated with nonperforming loans in the banking sector of the G7 countries while loan loss provision is more responsive to changes in EPU in EU countries. The implication of the findings is that the correlation of economic policy uncertainty with loan loss provisions and nonperforming loans is influenced by regional characteristics.

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