Determinants of Non-performing Loans: A Comparative Study of Pakistan, India, and Bangladesh

Muhammad Waqas, Nudrat Fatima, Aryan Khan and Muhammad Arif
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Muhammad Waqas: Department of Management Science, Capital University of Science and Technology, Islamabad, Pakistan
Nudrat Fatima: Department of Management Science, Capital University of Science and Technology, Islamabad, Pakistan
Aryan Khan: Department of Management Science, Capital University of Science and Technology, Islamabad, Pakistan
Muhammad Arif: Assistant Professor, Department of Management Science, Govt. College of Management Sciences, Swabi, Pakistan

International Journal of Finance & Banking Studies, 2017, vol. 6, issue 1, 51-68

Abstract: The aim of the empirical study is to investigate credit risk determinants in banking sectors across three kinds of South Asian economies. An accumulated sample of 105 unbalanced panel data of financial firms over the period of 2000-2015, by applying General Method of Moment (GMM) estimation techniques one-step at the difference in order to identify factors influencing credit risk. This study is inspired by two broad categories of explanatory variables which are bank-specific and macroeconomic. Bank-specific factors influencing unsystematic risk, while macroeconomic factors promoting systematic risk. The study uses a proxy of non-performing loans for credit risk in banking sectors of Pakistan, India, and Bangladesh. The empirical results have been found aligned with theoretical arguments and literature as expected. In comparison, NPLs in Pakistan is greater than India and Bangladesh, whileIndia has the lowest ratio of non-performing loans. The study documents that bank-specific factors (inefficiency, profitability, capital ratio and leverage) have a significant contribution towards credit risk. Further, the study also finds a significant impact of macroeconomic variables on non-performing loans. While, the result in the case of Bangladesh predictscontradictionsthat have no significant effect on non-performing loans at various levels. The overall results indicate that credit risk is not influenced by only external factors but also affect by internal factors like bad management and skimping etc.

Keywords: Non-performing loans; Credit Risk; Bank-specific; Macroeconomic; and Dynamic Panel Data (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (3)

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