Evaluating the Interaction of Bank Characteristics and Unexpected Crises on Nonperforming Loans in Malaysia

Abstract

Over the last few decades, Malaysia has experienced a large number of nonperforming loans, which is accompanied by a significant deterioration in the banking system. The problem also arises when Malaysia's economy has been attacked by the sudden crises, which literally distracts the banking characteristics. Therefore, this study is conducted to investigate the impact of bank characteristics and unexpected crises on nonperforming loans in Malaysia's commercial banks. Data from sixteen (16) commercial banks spanning from 2007 to 2020 are used. Panel data analysis is utilized to examine the impact of the interaction between bank characteristics and unexpected crises on the bank's nonperforming loans. The finding reveals that unexpected crises influence nonperforming loans through the interaction of bank characteristics. It discloses the existence of unexpected crises alongside deterioration in bank characteristics may lead to the problem of nonperforming loans arising in the banking system. The severity of the crises erodes the banking confidence in publicly serving the loans as before and leaves the banks facing a significant burden in the higher accumulation of loans unperformed. Further, this result suggests that a strict and in-depth lending policy based on the current economic environment and conditions must be provided to ensure uniformity in the credit facilities.