Is the relationship between non-performing loans of banks and economic growth asymmetric ? Malaysia’s evidence based on linear and nonlinear ARDL approaches

Tasneem Khalaf and Abul Masih

MPRA Paper from University Library of Munich, Germany

Abstract: Banks play an important role as intermediaries between the savers and the borrowers in an economy. One issue, however, that the banks face during the development process is the increase in the non-performing loans (NPL) in the developing economies. In particular, during the financial crisis, many loans become non-performing loans (NPL) and the banks face liquidity crises. It is the focus of this paper to investigate whether (a) the relationship between the non-performing loans of banks and economic growth (GDP) is cointegrated or not i.e., whether they are theoretically related or not in the long term and (b) if they are, whether the relationship is symmetric or asymmetric in the short and long term. We use ARDL and nonlinear ARDL for the analysis. Malaysia is used as a case study. The findings tend to indicate that the NPL and GDP are indeed cointegrated as evidenced in both ARDL and Nonlinear ARDL. As to whether the relationship between the NPL and GDP is symmetric or not, the findings tend to indicate that the relationship is asymmetric in the long run but symmetric in the short run. These findings have important policy implications for the developing countries like Malaysia.

Keywords: Non-performing loans of banks; GDP; Linear ARDL; Nonlinear ARDL; Malaysia (search for similar items in EconPapers)
JEL-codes: C22 C58 E44 G21 (search for similar items in EconPapers)
Date: 2018-12-18
New Economics Papers: this item is included in nep-ban, nep-fdg, nep-mac and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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