Micro and Macro Drivers of Credit Risk: The Case of Zimbabwean Banking Industry (2009-2013) (original) (raw)
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The effects of non-performing loans on bank stability and economic performance in Zimbabwe
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This study explores the impact of non-performing loans (NPLs) on the Zimbabwean banking industry’s stability and economic performance during the dollarization era. The panel vector autoregressive (PVAR) model was applied using annual data from 2009 to 2017. The findings indicated that short-run NPL shocks negatively impact the risk-adjusted return, while the impact on risk-adjusted capitalization is positive but dies off in the long run. The findings from the paper further show that NPLs have a strong negative and significant effect on loan growth and economic performance in the short run but remain muted in the long run. The study results also show a bi-directional causality between banking industry stability and NPLs. In summary, NPLs affect banking industry stability, loan growth and economic performance in Zimbabwe. A possible implication is the formulation of a sound regulatory framework that curbs the increase in NPLs, promotes stability within the banking industry, and improv...
This paper used complementary panel data models that are fixed effect regression model and panel vector auto regression model. The study was motivated by the hypothesis that both macroeconomic and microeconomic variables have an effect on the loan quality. The first part of the research was to determine the specific macro and microeconomic variables that give rise to the non-performing loans (NPLs) using fixed effect regression model. The empirical findings of this study provide evidence that nonperforming loans depends on macro and micro economic variables, the trend analysis of Zimbabwean commercial banks' shows an upward movement of over the period of study. The study found out that Gross domestic product (GDP), Inflation, loan deposit ratio and bank size had a statistical significant effect on the level of non-performing loans (NPLs). The second part was mainly to model the dynamic relationship of all the variables that were found to affect non-performing loans (NPLs); this was done through impulse response analysis based on PANEL VAR model. One standard shock to credit growth will be greatly felt in the sixth year, whereas of size of the bank will have a great negative impulse in the seventh year.
Macroeconomic and bank-specific determinants of non-performing loans in sub-Saharan Africa
2019
This paper investigates the macroeconomic and bank-specific determinants of non-performing loans (NPLs) in eight sub-Saharan African economies. The study is motivated by the fact that some of these economies have experienced banking crises in the past, their NPLs have relatively been rising post the 2008/2009 global financial crisis and have recently experienced rapid growth of bank credit to the private sector. Such issues pose credit risks in the banking sector. Employing dynamic panel data methods over the period 2000-2017 and using a variety of specifications, the results show that NPLs decrease when real GDP growth rate, return on equity, return on assets, and bank size increase and rises when public debt, inflation rate, broad money, and domestic credit to private sector by banks increase.
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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 ...
Future Business Journal
The study empirically investigates selected macroeconomic determinants of non-performing loans (NPLs) for a panel of 8 South Asian Association for Regional Cooperation countries (Afghanistan, Bangladesh, Bhutan, India, Nepal, Maldives, Pakistan, and Sri Lanka), using annual data for the period 2008–2019. To examine the association, this study, primarily, conducted the OLS model, fixed effect estimates, and random effect estimates and, eventually, applied robust fixed effect estimates to resolve the problem of heteroscedasticity. The empirical findings confirmed the previous findings, indicating a significant positive association with the government budget balance and a significant inverse relationship with GDP, sovereign debt, inflation rate, and money supply. To reduce the aggregate NPLs in the South Asian Association for Regional Cooperation economy, the respective country’s government should identify the financial sector’s vulnerabilities and, thereby, emphasize boosting the econ...
World Review of Entrepreneurship, Management and Sustainable Development, 2021
We used Panel ARDL and Panel NARDL to investigate the macroeconomic and bank-specific determinants of Non-Performing Loan (NPL) in the West African Monetary Zone (WAMZ) for the period 2003 to 2018. We found that both bank-specific and macro-economic determinants jointly influence NPLs in varying degrees. There is also empirical evidence that NPL adjusts more non-linearly/asymmetrically to the dynamics of the bank-specific and macro-economic determinants than it does linearly. This discovery will guide in rebalancing the policy direction in loan and credit administration from just a linear direction to a combination of linear and nonlinear perspectives especially in the WAMZ.
How Do Bank-Specific Factors Impact Non-Performing Loans: Evidence from G20 Countries
Journal of Central Banking Theory and Practice
Banking is important for the stability and success of the economy. The success of the banking system on financial intermediation in developing countries is directly affected by non-performing loans (NPLs). Many factors can be treated as NPL determinants. Accordingly, the factors that explain NPLs contain very important information for banks. To this end, the study is an attempt to examine various banking factors that affect NPLs with respect to developing economies. In this study, the bank-specific and macroeconomic factors affecting the NPL rates were analysed through the dynamic panel data analysis. Analyses were made using described G20 countries between 1998 and 2017. The results indicate that the lagged value of NPLs, return on equity, credit growth and credit costs have a significant positive relationship with NPLs, while capital adequacy and GDP have a negative association with NPLs. The results confirm that if the bank-specific conditions change, the credit quality and bank ...
Global Journal of Commerce and Management Perspective, 2016
The Zimbabwean banking systems has been burdened by non-performing loans. Bad loans have created several problems for commercial banks in Zimbabwe hindering efficient functioning of banks. It is for this reason that commercial banks have adopted non-performing loans management strategies so as to improve financial performance. This study sought to establish the challenges faced by commercial banks in managing non-performing loans (NPLs) in Zimbabwe (2009-2014). A descriptive survey design was adopted as the research design. The population of this study consisted of 12 commercial banks in Zimbabwe. The primary data was collected using structured questionnaires and interviews. The study found that weak judiciary systems, time constraints, poor macroeconomic conditions, ICTS challenges, poor organizational structures, over borrowed clients who lack collateral and subprime lending are the prevalent challenges in Zimbabwe. It is therefore recommended that the government spearheads macroeconomic turnaround by implementing policies that promote economic growth and development. It is difficult for banks to report the real levels of their NPLs without a proper reporting system. Banks should upgrade their ICT systems in order for them to detect the early warning signs of accounts that are going under. Banks do not have adequate capacity to screen and monitor their borrowers and therefore distinguish between good and bad risks. The credit markets have been faced with adverse selection and moral hazard problems attributed to information asymmetry among lenders and borrowers. It is therefore important that lenders supplement their information about borrowers with that of other lenders through the establishment of a credit bureau in Zimbabwe.
Non - Performing Loans in BRICS Nations : Determinants and Macroeconomic Impact
Indian Journal of Finance, 2019
The issue of non-performing loans is considered as a serious threat towards the banking soundness of a country. Non-performing loans are those loans which cease to generate principal and interest and create a negative impact on the performance of banks. There are a host of factors which affect non-performing loans, which include both banking and macroeconomic variables. This study attempted to study the impact of macroeconomic determinants on the non-performing loans of BRICS countries covering the period from 2000-2016. The BRICS bloc was considered for the study as various previous studies showed that trading blocs also get affected by inter country non-performing loans' issues. This study used dynamic panel data approach for analysis using the fully modified ordinary least square model (FMOLS) along with cointegration analysis, and for robustness checks, this model incorporated the fixed and random ordinary least square methods. The results showed that unemployment had a positive relation with non-performing loans; whereas, growth and financial soundness of a country had a negative relation with non-performing loans. Saving rate of households also had an inverse relation with non-performing loans and inflation rate also showed a negative relation with default loans. © 2019, Associated Management Consultants Pvt. Ltd. All rights reserved.