The consequences of bank loan growth: Evidence from Asia

Chaiporn Vithessonthi ()

International Review of Economics & Finance, 2023, vol. 83, issue C, 252-270

Abstract: How much of non-performing loans can be explained by loan growth? If an increase in loan growth leads to higher profitability but does not necessarily cause non-performing loans to increase in the short run, banks with (managerial) short-termism will be ex ante incentivized to grant more loans to increase short-run profitability. Based on a final sample of publicly listed banks in 17 countries in Asia during the period 1995–2014, I find that in loan growth is not correlated with profitability but is positively associated with non-performing loans. In addition, banking sector development is positively associated with non-performing loans. The positive effect of loan growth on non-performing loans is stronger during financial crisis periods than tranquil times. These insights have the crucial consequences for central banks and banking supervisory authorities.

Keywords: Asia; Financial crisis; Loan growth; Managerial short-termism; Non-performing loans; Profitability (search for similar items in EconPapers)
JEL-codes: F4 G1 G2 G3 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Working Paper: Consequences of Bank Loan Growth: Evidence from Asia (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:83:y:2023:i:c:p:252-270

DOI: 10.1016/j.iref.2022.08.025

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