Non-Performing Loans, Banking System and Macroeconomy

Morakinyo Akinola (), Muller Colette and Sibanda Mabutho
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Morakinyo Akinola: University of KwaZulu-Natal, South Africa
Muller Colette: University of KwaZulu-Natal, South Africa
Sibanda Mabutho: University of KwaZulu-Natal, South Africa

Studia Universitatis Babeș-Bolyai Oeconomica, 2018, vol. 63, issue 2, 67-86

Abstract: The study builds on previous studies of the consequences of non-performing loans on an economy. Using a seven-by-seven matrix in the impulse response function (IRF) of the structural autoregressive model, we find a long-run impact of an impulse to non-performing loans on the banking system and the macroeconomy in Nigeria. Conversely, non-performing loans also respond to the innovation of all macro-banking variables aside from the exchange rate and the growth rate to GDP. Also, the level of non-performing loans grows in influence in relation to the changes to the exchange rate using the variance decomposition tool of Structural VAR. Hence, a prominent role is assigned to the level of NPLs in linking the friction in the credit market to the susceptibility of both the banking system and the macroeconomy. This study passes the serial correlation tests and the three tests of normality.

Keywords: SVAR; non-performing loans; impulse response function; variance decomposition; macro-banking (search for similar items in EconPapers)
JEL-codes: E51 G21 O47 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:subboe:v:63:y:2018:i:2:p:67-86:n:4

DOI: 10.2478/subboec-2018-0009

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