Do Macroeconomic Determinants of Non-Performing Loans Vary with the Income Levels of Countries?
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Journal of Systems Science and Information  2018, Vol. 6 Issue (6): 512-531    DOI: 10.21078/JSSI-2018-512-20
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Do Macroeconomic Determinants of Non-Performing Loans Vary with the Income Levels of Countries?
Laxmi KOJU1,2, Ghulam ABBAS3,4, Shouyang WANG3,5
1. Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing 100190, China;
2. University of Chinese Academy of Sciences, Beijing 100049, China;
3. School of Economics and Management, University of Chinese Academy of Sciences, Beijing 100190, China;
4. Sukkur Institute of Business Administration, Sindh-65200, Pakistan
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Abstract 

This paper explores the macroeconomic determinants of non-performing loans (NPL) in 19 Asian countries (low to high income economies) using the Generalized Method of Moments estimation approach based on the economic data for the period between 1998 and 2015. The categorization of the economies is based on the average gross national income per capita as set by the World Bank. Specifically, the paper aims to evaluate if the determinants of NPL vary with the income levels of the countries. The results indicate that the NPL is strongly influenced by the inflation rate. The effect is, however, negative in the high-income and the middle-income countries and positive in the low-income countries. The GDP per capita has a dynamic negative relationship with the NPL in the high-income and the low-income countries. The remittance has a significant positive association in the high-income and a significant negative association in the low-income countries. Similarly, the unemployment rate has a positive effect on NPL in the middle-income and the low-income countries. With the rise in the official exchange rate, the NPL level increases in the low-income countries. The overall estimation results suggest that the NPL in Asian banking system depend on some key macroeconomic variables, such as unemployment rate, inflation rate, official exchange rate, remittance received and gross domestic product per capita, and these associations vary with the income level of the countries. Therefore, economic level of a country should be carefully considered while formulating credit policy to minimize credit risks in the banking system.

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Articles by authors
Laxmi KOJU
Ghulam ABBAS
Shouyang WANG
Key wordsdynamic panel   economic growth   fiscal policy   gross national income   non-performing loans     
Received: 2017-09-20;
Cite this article:   
Laxmi KOJU,Ghulam ABBAS,Shouyang WANG. Do Macroeconomic Determinants of Non-Performing Loans Vary with the Income Levels of Countries?[J]. Journal of Systems Science and Information, 2018, 6(6): 512-531.
URL:  
http://123.57.41.99/Jwk_si/EN/10.21078/JSSI-2018-512-20     or     http://123.57.41.99/Jwk_si/EN/Y2018/V6/I6/512
 
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