Is the relation between lending interest rate and non-performing loans symmetric or asymmetric ? evidence from ARDL and NARDL

Wan Athirah Bahruddin and Abul Masih

MPRA Paper from University Library of Munich, Germany

Abstract: Lending interest rate has an inherent implicit cost on the credit issued by banks with implication on loan defaults. In this regard, high level of non-performing loans ( NPLs) will depress economic growth owing to many banks refusing to lend. This paper makes the initial attempt to test the non-linear asymmetric relationships between lending interest rate and NPLs by using the NARDL approach and provides a direction of Granger causality between the lending interest rate and NPLs. Malaysia is used as a case study. The finding tends to indicate that lending interest rate and NPLs has an asymmetric relationship in the short-run and symmetric relationship in the long-run. This paper suggests that banks can improve their quality credit management by streamlining their collection process and the quality of customers in order to reduce the number of NPLs in the short-run. Besides, banks can keep their total risk low by diversifying their loan portfolios.

Keywords: Lending interest rates; non-performing loans; ARDL; NARDL; Malaysia (search for similar items in EconPapers)
JEL-codes: C22 C58 E44 (search for similar items in EconPapers)
Date: 2018-12-31
New Economics Papers: this item is included in nep-ban, nep-mac and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/91565/1/MPRA_paper_91565.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:91565

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().