Deflation, bank credit growth, and non-performing loans: Evidence from Japan

Chaiporn Vithessonthi ()

International Review of Financial Analysis, 2016, vol. 45, issue C, 295-305

Abstract: In this paper, I examine the link between bank credit growth and non-performing loans in an economy with deflationary pressures. Using panel OLS regressions and two-step GMM regressions, I find evidence for the time-varying relationship between bank credit growth and non-performing loans in a sample of 82 publicly listed commercial banks in Japan during the period 1993–2013. I show that bank credit growth positively correlates with non-performing loans prior to the onset of the global financial crisis of 2007 but negatively correlates with non-performing loans afterwards. I find evidence to support the notion that large banks drive the observed effects of credit growth on non-performing loans. In addition, credit growth and non-performing loans have no effect on profitability. Overall, the findings suggest that while the increase in the supply of bank loans increases the level of non-performing loans, it does not lead to higher profitability.

Keywords: Credit growth; Deflation; Financial crisis; Japan; Non-performing loans (search for similar items in EconPapers)
JEL-codes: G15 G21 G32 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (49)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:45:y:2016:i:c:p:295-305

DOI: 10.1016/j.irfa.2016.04.003

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