BANK-SPECIFIC AND MACROECONOMIC DETERMINANTS OF NON-PERFORMING LOANS OF COMMERCIAL BANKS IN BANGLADESH
DOI:
https://doi.org/10.31933/dijms.v1i1.28Keywords:
Non-Performing Loans, Commercial Bank, Macroeconomic Determinants, Bank-Specific DeterminantsAbstract
The prime objective of this research is to identify the main determinants of non-performing loans in the commercial banking system of Bangladesh for the period 2011-2016 using panel data modeling. This paper uses balanced panel data method to examine both bank-specific (return on average assets, net loans to deposit ratio, bank size, cost-to-income ratio, and capital adequacy ratio) and macroeconomic (real GDP growth rate and inflation rate) variables. To attain the objectives, the present research analyzed historical data and panel data model using secondary data. To examine panel data modeling, the researcher considers 16 private commercial banks in Bangladesh and executed pooled OLS model, fixed effect model, random effect model and random effect with the robust standard error. The researcher found a negative significant relationship for return on average assets, net loans to deposit ratio and inflation rate in relation to NPLs and results are supporting the previous researcher. Based on the findings, the study offers some valuable strategies to the management to improve return on average assets, net loans to deposit ratio and inflation rate to reduce the NPLs at least under the tolerance level. The study also delineates the limitations of this work and direction for future research.
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Bourke, P. (1989). "Concentration and other determinants of bank profitability in Europe, North America and Australia." Journal of Banking & Finance 13(1): 65-79.
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Das, A. and S. Ghosh (2007). "Determinants of credit risk in Indian state-owned banks: An empirical investigation."
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Jesus, S. and J. Gabriel (2006). "Credit cycles, credit risk, and prudential regulation."
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Mathuva, D. (2009). "Capital adequacy, cost income ratio and the performance of commercial banks: The Kenyan Scenario." The International journal of applied economics and Finance 3(2): 35-47.
Messai, A. S. and F. Jouini (2013). "Micro and macro determinants of non-performing loans." International Journal of Economics and Financial Issues 3(4): 852.
Misra, B. and S. Dhal (2010). "Pro-cyclical management of banks’ non-performing loans by the Indian public sector banks." BIS Asian Research Papers.
Muijs, D. (2010). Doing quantitative research in education with SPSS, Sage.
Nkusu, M. (2011). "Nonperforming loans and macrofinancial vulnerabilities in advanced economies."
Parven, S. (2011). "Nonperforming loans of commercial banks in Bangladesh."
Podpiera, J. and L. Weill (2008). "Bad luck or bad management? Emerging banking market experience." Journal of Financial Stability 4(2): 135-148.
Rajan, R. and S. C. Dhal (2003). "Non-performing loans and terms of credit of public sector banks in India: An empirical assessment." Occasional Papers 24(3): 81-121.
Rinaldi, L. and A. Sanchis-Arellano (2006). "Household debt sustainability: what explains household non-performing loans? An empirical analysis."
Salas, V. and J. Saurina (2002). "Credit risk in two institutional regimes: Spanish commercial and savings banks." Journal of Financial Services Research 22(3): 203-224.
Škarica, B. (2014). "Determinants of non-performing loans in Central and Eastern European countries." Financial theory and practice 38(1): 37-59.
Sobhan, R. (1991). Debt default to the development finance institutions: the crisis of state sponsored entrepreneurship in Bangladesh, University Press.
Thompson, E., et al. (2002). "Turkish Bank Capital Adequacy–Too Little, Too Late." FitchRatings Special Report 1.
Tripe, D. (1998). Cost to income ratios in Australasian banking, Department of Finance, Banking and Property, College of Business, Massey University.
UNB (2017). "Classified loans in banks, financial insts Tk 63,435cr." The Independent, Newspaper. Retrieved NOV 01, 2017, from http://www.theindependentbd.com/printversion/details/79643.
Unit, T. E. I. (2017). "Bangladesh Banking Secotr Faces Challenges." Retrieved 2017-10-16, 2017, from http://www.eiu.com.
Viswanadham, N. and B. Nahid (2015). "Determinants of Non Performing Loans in Commercial Banks: A Study of NBC Bank Dodoma Tanzania." International Journal of Finance & Banking Studies 4(1): 70.
Wang, B. (2007). "Non-Performing Loan Resolution in the Context of China’s Transitional Economy."
Warue, B. N. (2013). "The effects of bank specific and macroeconomic factors on nonperforming loans in commercial banks in Kenya: A comparative panel data analysis." Advances in Management and Applied Economics 3(2): 135.
Welch, P. (2006). Rethinking bank efficiency: The failings of the cost-income efficiency ratio.
Al-Smadi, M. O. and N. H. Ahmad (2009). "Factors affecting banks’ credit risk: Evidence from Jordan." Collage of Business, University Utara Malaysia, Malaysia.
Alam, N. and S. B. Jahan (1999). "Default culture in banking sector of Bangladesh." Bank Parikrama 24(1): 23-38.
Aliaga, M. and B. Gunderson (2000). "Introduction to Quantitative research." Doing Quantitative Research in Education with SPSS. Thousand Oaks, CA: Sage Publications: 1-11.
Bangaldesh Bank, C. B. o. B. (2016). "Annual Report." Retrieved January 10, 2018, from https://www.bb.org.bd/pub/annual/anreport/ar1516/index1516.php.
Bank, T. W. (2017). Retrieved January 01, 2018, from https://data.worldbank.org/topic/economy-and-growth?view=chart.
Beck, R., et al. (2015). "Key Determinants of Non-performing Loans: New Evidence from a Global Sample." Open Economies Review 26(3): 525-550.
Bercoff, J. J., et al. (2002). "Argentinean Banks, Credit Growth and the Tequila Crisis: A Duration Analysis." Unpublished Paper.
Berge, T. O. and K. G. Boye (2007). "An analysis of banks' problem loans." Norges Bank. Economic Bulletin 78(2): 65.
Berger, A. N. and R. DeYoung (1997). "Problem loans and cost efficiency in commercial banks." Journal of Banking & Finance 21(6): 849-870.
Berger, P. G. and E. Ofek (1995). "Diversification's effect on firm value." Journal of financial economics 37(1): 39-65.
Bilal, M., et al. (2013). "Influence of bank specific and macroeconomic factors on profitability of commercial banks: A Case Study of Pakistan."
Boss, M., et al. (2009). "modeling credit risk through the Austrian business cycle: An update of the OeNb model." Financial Stability Report 17: 85-101.
Bourke, P. (1989). "Concentration and other determinants of bank profitability in Europe, North America and Australia." Journal of Banking & Finance 13(1): 65-79.
Burns, N. and S. K. Grove (1993). "The practice of nursing research." Conduct, critique & utilization 4.
Cifter, A. (2015). "Bank concentration and non-performing loans in Central and Eastern European countries." Journal of Business Economics and Management 16(1): 117-137.
Das, A. and S. Ghosh (2007). "Determinants of credit risk in Indian state-owned banks: An empirical investigation."
De Lis, F., et al. (2001). "Credit growth, problem loans and credit risk provisioning in Spain." bis Papers 1: 331-353.
Dimitrios, A., et al. (2016). "Determinants of non-performing loans: Evidence from Euro-area countries." Finance Research Letters 18: 116-119.
Ekanayake, E. and A. A. Azeez (2015). "Determinants of Non-Performing Loans in Licensed Commercial Banks: Evidence from Sri Lanka." Asian Economic and Financial Review 5(6): 868.
European Central Bank, B. S. (2016). "Draft guidance to banks on non-performing loans."
Ewert, R., et al. (2000). "Determinants of bank lending performance in Germany." Schmalenbach Business Review: ZFBF 52(4): 344.
Focus, O. B. (2017). World Banking Information Source. Online, Bureau Van Dijk.
Fofack, H. (2005). "Nonperforming loans in Sub-Saharan Africa: causal analysis and macroeconomic implications."
Godlewski, C. J. (2005). "Bank capital and credit risk taking in emerging market economies." Journal of Banking Regulation 6(2): 128-145.
Goodhart, M. C., et al. (2006). Default, credit growth, and asset prices, International Monetary Fund.
Hess, K. and G. Francis (2004). "Cost income ratio benchmarking in banking: a case study." Benchmarking: An International Journal 11(3): 303-319.
HU, J. L., et al. (2004). "Ownership and nonperforming loans: Evidence from Taiwan's banks." The Developing Economies 42(3): 405-420.
Islam, M. and L. Moral (1999). Bank loan default problem in bangladesh: A dialogue between borrowers and lenders. Keynote paper (seminar paper) presented at Bangladesh Institute of Bank Management, published in Bank Parikrama, May.
Jakubík, P. and T. Reininger (2013). "Determinants of nonperforming loans in Central, Eastern and Southeastern Europe." Focus on European Economic Integration 3: 48-66.
Jesus, S. and J. Gabriel (2006). "Credit cycles, credit risk, and prudential regulation."
Khemraj, T. and S. Pasha (2009). "The determinants of non-performing loans: an econometric case study of Guyana."
Klein, N. (2013). "Non-performing loans in CESEE: Determinants and impact on macroeconomic performance."
Li, H., et al. (2007). "Incentive contracts and bank performance." Economics of Transition 15(1): 109-124.
Louzis, D. P., et al. (2012). "Macroeconomic and bank-specific determinants of non-performing loans in Greece: A comparative study of mortgage, business and consumer loan portfolios." Journal of Banking & Finance 36(4): 1012-1027.
Macit, F. (2017). "What determines the non-performing loans ratio: evidence from Turkish commercial banks." CEA Journal of Economics 7(1).
Makri, V., et al. (2014). "Determinants of non-performing loans: The case of Eurozone." Panoeconomicus 61(2): 193.
Mathuva, D. (2009). "Capital adequacy, cost income ratio and the performance of commercial banks: The Kenyan Scenario." The International journal of applied economics and Finance 3(2): 35-47.
Messai, A. S. and F. Jouini (2013). "Micro and macro determinants of non-performing loans." International Journal of Economics and Financial Issues 3(4): 852.
Misra, B. and S. Dhal (2010). "Pro-cyclical management of banks’ non-performing loans by the Indian public sector banks." BIS Asian Research Papers.
Muijs, D. (2010). Doing quantitative research in education with SPSS, Sage.
Nkusu, M. (2011). "Nonperforming loans and macrofinancial vulnerabilities in advanced economies."
Parven, S. (2011). "Nonperforming loans of commercial banks in Bangladesh."
Podpiera, J. and L. Weill (2008). "Bad luck or bad management? Emerging banking market experience." Journal of Financial Stability 4(2): 135-148.
Rajan, R. and S. C. Dhal (2003). "Non-performing loans and terms of credit of public sector banks in India: An empirical assessment." Occasional Papers 24(3): 81-121.
Rinaldi, L. and A. Sanchis-Arellano (2006). "Household debt sustainability: what explains household non-performing loans? An empirical analysis."
Salas, V. and J. Saurina (2002). "Credit risk in two institutional regimes: Spanish commercial and savings banks." Journal of Financial Services Research 22(3): 203-224.
Škarica, B. (2014). "Determinants of non-performing loans in Central and Eastern European countries." Financial theory and practice 38(1): 37-59.
Sobhan, R. (1991). Debt default to the development finance institutions: the crisis of state sponsored entrepreneurship in Bangladesh, University Press.
Thompson, E., et al. (2002). "Turkish Bank Capital Adequacy–Too Little, Too Late." FitchRatings Special Report 1.
Tripe, D. (1998). Cost to income ratios in Australasian banking, Department of Finance, Banking and Property, College of Business, Massey University.
UNB (2017). "Classified loans in banks, financial insts Tk 63,435cr." The Independent, Newspaper. Retrieved NOV 01, 2017, from http://www.theindependentbd.com/printversion/details/79643.
Unit, T. E. I. (2017). "Bangladesh Banking Secotr Faces Challenges." Retrieved 2017-10-16, 2017, from http://www.eiu.com.
Viswanadham, N. and B. Nahid (2015). "Determinants of Non Performing Loans in Commercial Banks: A Study of NBC Bank Dodoma Tanzania." International Journal of Finance & Banking Studies 4(1): 70.
Wang, B. (2007). "Non-Performing Loan Resolution in the Context of China’s Transitional Economy."
Warue, B. N. (2013). "The effects of bank specific and macroeconomic factors on nonperforming loans in commercial banks in Kenya: A comparative panel data analysis." Advances in Management and Applied Economics 3(2): 135.
Welch, P. (2006). Rethinking bank efficiency: The failings of the cost-income efficiency ratio.
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Published
2019-10-27
How to Cite
Towhid, A., Shinta Amalina Hazrati Havidz, & Mohammed Ameen Qasem Ahmed Alnawah. (2019). BANK-SPECIFIC AND MACROECONOMIC DETERMINANTS OF NON-PERFORMING LOANS OF COMMERCIAL BANKS IN BANGLADESH. Dinasti International Journal of Management Science, 1(1), 86–101. https://doi.org/10.31933/dijms.v1i1.28
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