Factors Affecting Non-Performing Loans: A Study on Countries with Different Levels of Development

Nur Esra Bekereci, M. Mustafa Kisakurek and Yucel Ayricay

Journal of BRSA Banking and Financial Markets, 2023, vol. 17, issue 2, 131-152

Abstract: The amount of non-performing loans poses a risk for the healthy balance sheet structure of banks. These loans reduce the profitability of banks, consume their capital base, negatively affect liquidity, disrupt the assetliability balance, and may cause many other negativities. In this sense, effective monitoring and evaluation of credit risk is very important, especially for the financial soundness of banks and the stability of the economy. It is observed in the literature that the factors affecting these loans consist mostly of macroeconomic and sectorspecific factors. From this perspective, the main purpose of the study is to investigate the factors affecting problem loans. The aim of the study is to examine the relationship between non-performing loans and their determinants in terms of 59 countries at different development levels. In addition to evaluating whether the determinants in question vary according to the income levels of countries, it was investigated how the 2008 global crisis affected problem loans. In this context, 20-year data covering the years 2001–2020 of the group of high, upper-middle, and lower-middle-income countries was used. In the study, in which the Generalized Method of Moments (GMM) estimator, one of the dynamic panel data methods, was used, it was determined that macroeconomic factors were more effective in deteriorating asset quality in terms of country groups than sector-specific factors. Gross domestic product (GDP), the global crisis, and the persistence of non-performing loans have been the most effective predictors of non-performing loans overall in high-end, upper-middle, and lower-middle economies. In this sense, it has been noted that the persistence of non-performing loans in all country groups is higher in low-income countries, as expected. In addition, during crisis periods, non-performing loans pose a problem in low-income countries compared to high-income countries, It has been observed that growth is the main driving force in reducing non-performing loans compared to other macroeconomic variables in high-income countries. In short, it has been discovered that macroeconomic and sector-specific factors affecting credit risk in economies at different development levels vary according to the level of welfare.

Keywords: Non-Performing Loans; Macroeconomic Factors; Microeconomic Factors; Panel Data Analysis; GMM Journal: Journal of BRSA Banking and Financial Markets (search for similar items in EconPapers)
JEL-codes: C23 F65 G21 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.bddk.org.tr/Content/docs/bddkDergiTr/dergi_0034_03.pdf (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:bdd:journl:v:17:y:2023:i:2:p:131-152

Access Statistics for this article

More articles in Journal of BRSA Banking and Financial Markets from Banking Regulation and Supervision Agency Contact information at EDIRC.
Bibliographic data for series maintained by Sumeyye Azize CENGIZ ().