The Impact of Non-Performing Loans on Bank Growth: The Moderating Roles of Bank Size and Capital Adequacy Ratio—Evidence from U.S. Banks

Richard Arhinful (), Leviticus Mensah, Bright Akwasi Gyamfi () and Hayford Asare Obeng
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Richard Arhinful: Faculty of Management, Multimedia University, Cyberjaya 63000, Selangor, Malaysia
Leviticus Mensah: Department of Accounting and Finance, World Peace University, Nicosia 99320, Turkey
Bright Akwasi Gyamfi: Faculty of Management, Multimedia University, Cyberjaya 63000, Selangor, Malaysia
Hayford Asare Obeng: Department of Business Administration, World Peace University, Nicosia 99320, Turkey

IJFS, 2025, vol. 13, issue 3, 1-23

Abstract: Banks in the United States face persistent challenges from non-performing loans (NPLs), despite conducting thorough client evaluations before issuing loans. To mitigate the impact of NPLs and support both local and global growth, banks must adopt effective risk management strategies. This study investigates the effect of NPLs on bank growth and the moderating of bank size and Capital Adequacy Ratio (CAR) through the lens of the Resource-Based View (RBV) theory. A sample of 253 banks listed on the New York Stock Exchange from 2006 to 2023 was selected using specific inclusion criteria from the Thomson Reuters Eikon DataStream. To address cross-sectional dependence and endogeneity, advanced estimation techniques—Feasible Generalized Least Squares (FGLS), Driscoll and Kraay standard errors, and the Generalized Method of Moments (GMM)—were employed. The results show that NPLs have a significant negative impact on banks’ asset and income growth. Furthermore, bank size and capital adequacy ratio (CAR) negatively and significantly moderate this relationship. These findings underscore the need for banks to enhance credit risk management by strengthening loan approval processes and leveraging advanced analytics to assess borrower risk more accurately.

Keywords: asset growth; banks; income growth; non-performing loans; Resource-Based View (RBV) theory (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2025
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