Factors influencing non-performing loans: empirical evidence from commercial banks in Malaysia

Abstract

Purpose-The purpose of this research is to examine the factors influencing non-performing loans (NPLs) ratio for Malaysian commercial banks from the period 2010 to 2018. Methodology-Bank-specific factors and macroeconomic factors were included in the analysis. Using panel data of fifteen commercial banks in Malaysia. Findings-The finding reveals that capital adequacy ratio is a significant factor in influencing the sample banks' level of non-performing loans. All other bank-specific factors employed in the analysis were found to be insignificant. In addition, based on the results provided by real gross domestic products and inflation, we can conclude that economic situation does not impact the non-performing loans level of the sample commercial banks. Conclusion-It has been concluded that the loan quality of the sample bank is questionable. In order to ensure an effective operating and high performance of banks, banks require a deep concentration on their loan quality that would not only generate income, but also minimize negative and ineffective outcome to the banks. In addition, this study can be valuable to supervisory authorities, governments, and the banking industries in forecasting non-performing loans as this study shows the determinants that shape the level of Non-performing loans.

Determinants of Non-Performing Loans (NPLs); Evidence from Banking Sector of Pakistan

“…Various studies expressed negative connection between nonperformance loans and economic growth (Lubis, & Mulyana, 2021;Prastowo, & Usman, 2021;Mohaddes, Raissi, & Weber, 2017. ) although others described positive and significant link with them (Mahyoub, & Said, 2021;Beck, Piloiu, & Jakubik, 2015;Alexandri, & Santoso, 2015;Saba, Kouser, & Azeem, 2012). Furthermore, some of studies confirmed a insignificant association between GDP growth and non-performing loans (Žunić, Kozarić, & Dželihodžić, 2021;Dimitrios, Helen, & Mike, 2016;Tanasković, & Jandrić, 2015;Nor & Ahmad, 2015;Singh, Basuki, & Setiawan, 2021).…”

“…The findings confirmed and located the terrible dating of total financing through Islamic banks has negative association with and capital adequacy. Capital adequacy percentage suggests the ability of a company to face strange losses and to continue to exist that scenario (Mahyoub, & Said, 2021;Manz, 2019). Hu & Chiu (2004) explored that the negative association occurs among NPLs, bank size and capital while banks subsidize risky loans (Constant & Ngomsi, 2012;Hu & Chiu, 2004) Numerous banking reasons that influenced the non-preforming loans (Kumer & Kishore, 2019;Amuikwa & Boakye, 2015).…”