How Bank Managers Anticipate Non-Performing Loans. Evidence from Europe, US, Asia and Africa

Pk Ozili

MPRA Paper from University Library of Munich, Germany

Abstract: This study extends the literature on the determinants of NPL. I investigate whether banks anticipate non-performing loans by making balance sheet adjustments. This study draws insights into the actions taken by credit risk management teams and bank managers to minimize the size of non-performing loans. After examining 82 banks from US, Europe, Asia and Africa, the result indicate that banks adjust the level of loan loss reserves and loan growth to minimize the size of NPLs. Our results do not show evidence that loan diversification minimizes NPLs. Further, I find that banks in developing countries reduce loan growth when they expect high NPL while banks in developed countries do not anticipate the level of NPL by adjusting loan growth. Further, I find that post-crisis Basel regulation did not lead to a decrease in the size of NPLs among banks in developed countries but appear to minimize NPLs in some developing countries. Overall, the significance and predictive power of each bank-specific factor (excluding loan diversification), regulatory variable and macroeconomic indicator in explaining NPLs depends on regional factors (less significantly) and country-specific factors (more significantly).

Keywords: Non-performing Loans; Credit risk; Macroeconomic determinants; bank specific determinants; banking (search for similar items in EconPapers)
JEL-codes: G20 G21 G32 G38 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-rmg and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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