The determinants of non-performing loans: an econometric case study of Guyana

Tarron Khemraj and Sukrishnalall Pasha

MPRA Paper from University Library of Munich, Germany

Abstract: The study attempts to ascertain the determinants of non-performing loans in the Guyanese banking sector using a panel dataset and a fixed effect model similar to Jimenez and Saurina (2005). Consistent with international evidence we find that the real effective exchange rate has a significant positive impact on non-performing loans. This indicates that whenever there is an appreciation in the local currency the non-performing loan portfolios of commercial banks are likely to be higher. Our empirical results show that GDP growth is inversely related to non-performing loans, suggesting that an improvement in the real economy translates into lower non-performing loans. We also find that banks which charge relatively higher interest rates and lend excessively are likely to incur higher levels of non-performing loans. However, contrary to previous studies, our evidence does not support the view that large banks are more effective in screening loan customers when compared to their smaller counterparts.

Keywords: Financial stability; non-performing loans; commercial banks (search for similar items in EconPapers)
JEL-codes: E50 E51 G01 G21 (search for similar items in EconPapers)
Date: 2009-08
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Citations: View citations in EconPapers (67)

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