Determinants of non-performing loans: evidence from Southeast Asian countries

Abstract

The purpose of this study is to examine the bank-specific and macroeconomic determinants of non-performing loans using an empirical framework that incorporates the related literature and theoretical hypothesis. To account for non-performing loans persistence, the paper applies the Generalized Method of Moments technique for dynamic panels which use bank-level data for Southeast Asian commercial banks over the period 2010 to 2015. The empirical results provide some evidence to affirm that both bank-level and macroeconomic factors play a role in rising the non-performing loans of Southeast Asian banks. The findings indicate that the high non performing loans during these years is associated with low profitability, low credit growth, low loan to deposit, high equity and large bank size. Finally, the macroeconomic determinants have the significant effect on loan quality in the anticipated ways. The results also find fiscal variable has negative effect on non-performing loans and found to be significant. These findings may be helpful for policy makers to design macro-prudential and fiscal policies