Elections and bank non-performing loans: Evidence from developed countries

Peterson Ozili

Modern Finance, 2024, vol. 2, issue 2, 63-79

Abstract: The existing literature has not examined how elections affect bank non-performing loans and its determinants even though banks are often the largest borrowers to fund election campaigns in many countries. This study investigates the determinants of bank non-performing loans (NPL) during election years in 35 developed countries. The fixed effect regression methodology was used to estimate the determinants of bank non-performing loans during election years. It was found that the banking sector experienced high NPLs during election years. Efficient banks operating in robust legal environments have higher non-performing loans during election years. It was also found that capital adequacy ratio, real GDP growth, loan-to-GDP ratio, cost-to-income ratio, political stability, and absence of terrorism are significant determinants of bank non-performing loans. The findings imply that election matters for the persistence of bank non-performing loans in developed countries.

Keywords: non-performing loan; bank performance; election; banks; credit risk; efficiency; capital adequacy ratio; GDP growth; political stability (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:bdy:modfin:v:2:y:2024:i:2:p:63-79:id:175

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