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The Determinants of Non-performing Loans: Dynamic Panel Evidence from South Asian Countries

Md. Shahidul Islam and Shin-Ichi Nishiyama

No 353, TERG Discussion Papers from Graduate School of Economics and Management, Tohoku University

Abstract: Using the GMM estimator, this paper empirically studies the bank-specific, industry specific and macroeconomics specific determinants of non-performing loans of banks in the South Asian countries (Bangladesh, India, Nepal and Pakistan) for the period of 1997-2012. We found that moral hazard problems between the bank management and the depositors in addition to that between the bank management and the shareholders; and the adverse selection of borrowers by the bank significantly affect the bank credit risk. We also found evidence that bad management, cost inefficiency, income diversification, bank size, industry concentration ratio, inflation and GDP growth rate all significantly explain the levels of bank NPLs. Empirical results show a moderate degree of persistence of NPLs and a late-hit of the global financial crisis in the banking sector of the region.

Pages: 34 pages
Date: 2016-09
New Economics Papers: this item is included in nep-ban
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http://hdl.handle.net/10097/64097

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