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The Influence of Bank Performance, Market Condition and Economic Growth on Non-Performing Loansa

Candida Ferreira

World Journal of Applied Economics, 2023, vol. 9, issue 1, 77-98

Abstract: The paper contributes to the literature on the determinants of non-performing loans by applying panel fixed effects and dynamic Generalised Method of Moments (GMM) estimations to a relatively large panel of 80 countries over the period 1999-2017. The paper considers three categories of explanatory variables; bank-level, industry-level, and macroeconomic-level. The bank-level variables highlight the relevance of bank profitability and efficiency to avoid non-performing loans. The industry-level variables, for the entire period and particularly after the onset of the Global Financial Crisis (years 2009-2017), show that bank market concentration promoted non-performing loans, while bank market competition and bank stability did not contribute to increasing non-performing loans. The macroeconomic-level variable, real per capita gross domestic product, provides very convincing evidence that promoting economic growth looks like the best way to avoid non-performing loans. Analyses with different sub-samples show that the determinants of non-performing loans are not particularly dependent on the level of income of the country.

Keywords: Non-performing loans; Bank performance; Bank market conditions; Panel estimates (search for similar items in EconPapers)
JEL-codes: C3 F39 G15 G21 G32 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.22440/wjae.9.1.4

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Handle: RePEc:ana:journl:v:9:y:2023:i:1:p:77-98