Banking-industry specific and regional economic determinants of non-performing loans: Evidence from US states

Amit Ghosh

Journal of Financial Stability, 2015, vol. 20, issue C, 93-104

Abstract: The present study examines state-level banking-industry specific as well as region economic determinants of non-performing loans for all commercial banks and savings institutions across 50 US states and the District of Columbia for 1984–2013. Using both fixed effects and dynamic-GMM estimations, I find greater capitalization, liquidity risks, poor credit quality, greater cost inefficiency and banking industry size to significantly increase NPLs, while greater bank profitability lowers NPLs. Moreover, higher state real GDP and real personal income growth rates, and changes in state housing price index reduce NPLs, while inflation, state unemployment rates, and US public debt significantly increase NPLs. The findings imply that regular stress tests on banks’ loan quality that typically underpin scenarios for a rise in NPLs, should take into account the impact of ‘micro’ or state-level economic conditions on NPLs, in addition to banks’ capital and credit quality, and effective cost management in assessing banks financial health.

Keywords: Non-performing loans; Bank balance sheet; State-level economic conditions; GMM-estimations; Financial stability (search for similar items in EconPapers)
JEL-codes: C23 E32 G21 G28 R10 R11 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (195)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:20:y:2015:i:c:p:93-104

DOI: 10.1016/j.jfs.2015.08.004

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