The impact of central bank independence and transparency on banks' non-performing loans and economic stability

Abdullah Mamoon (), Frank Kwabi (), Ernest Ezeani () and Wansu Hu ()
Additional contact information
Abdullah Mamoon: Leeds Becket University
Frank Kwabi: De Montfort University
Ernest Ezeani: Heriot-Watt University
Wansu Hu: De Montfort University

Journal of Banking Regulation, 2025, vol. 26, issue 1, No 2, 25-40

Abstract: Abstract The global financial crisis of the past decade had a detrimental impact on banking institutions worldwide. In both developed and developing countries, it is widely documented that the proportion of non-performing loans is often linked to bank collapse and financial crises. Existing studies show that central bank independence and transparency are important for a country's financial stability and institutional quality. Building on this premise, we investigate whether central bank independence and transparency affect the occurrence of non-performing loans. Using panel data from 39 countries, we find that central banks free from political interference reduce non-performing loans. Similarly, transparent central banks with a lower degree of information symmetry reduce the prevalence of non-performing loans. Thus, our findings support that independent and transparent central banks minimize the incidence of non-performing loans. The results imply that independent central banks indirectly impact bank operational outcomes. Our results are robust to a battery of tests and specifications.

Keywords: Central bank independence; Central bank transparency; Non-performing loans (search for similar items in EconPapers)
JEL-codes: F3 G15 G2 (search for similar items in EconPapers)
Date: 2025
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1057/s41261-024-00237-y Abstract (text/html)
Access to full text is restricted to subscribers.

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:pal:jbkreg:v:26:y:2025:i:1:d:10.1057_s41261-024-00237-y

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/41261/PS2

DOI: 10.1057/s41261-024-00237-y

Access Statistics for this article

Journal of Banking Regulation is currently edited by Dalvinder Singh

More articles in Journal of Banking Regulation from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().