Investigating the factors affecting nonperforming loans in commercial banks: The case of African lower middle‐income countries

Olarewaju, Odunayo Magret

doi:10.1111/1467-8268.12475

Cited by 11 publications

(12 citation statements)

References 27 publications

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“…The Capital Adequacy Ratio (CAR), measures the degree of banks' solvency, stability, soundness as well as their ability to absorb risk. According to some studies [9,11], CAR is negatively related to NPL; Olarewaju [12] reported that, capital adequacy has a significant and indirect impact on the NPLs of the banks in Low Middle Income (LMI) economies. This means an increase in CAR will enable banks to keep more funds aside to meet liabilities and other obligations hence reducing the number of initial loans and resultant NPLs.…”

Section: Bank Specific Variablesmentioning

confidence: 99%

Macroeconomic and Bank Specific Determinants of Non-performing Loans in Ghanaian Banking Sector

Okyere¹,

Mensah²

2022

IJAFRM

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Banks play an important role in the creation of capital for economic growth of a nation and their reliability is very critical for financial system stability. Nevertheless, banks face risks such as credit risk, which seem to have an impact on banks profitability. To determine credit risk, the ratio of Non-Performing Loans (NPLs) to total bank loans is the most common indicator used. Non-Performing Loans are loans that do not produce interest and principal amount for a minimum of 90 days and fundamentally reflects the performance of a bank. A high ratio indicates a greater risk of loss while a small ratio presents a low risk to the bank. NPLs systematically affects the whole banking system and if care is not taken will disturb its future development. The study examined the determinants of NPLs in the banking industry of Ghana using bank specific and macroeconomic variables. The study was based on monthly data covering the period January 2007 to December 2019 and employed the ARDL bounds test of co-integration to estimate the evidence of short run and long run relationship among the variables. The study results revealed that, bank's lending rate, bank's profitability, Cost to Income Ratio, Capital Adequacy Ratio and Net Interest Margin are the bank specific factors influencing non-performing loans. At the macroeconomic level, inflation and economic growth reduces non-performing loans. Furthermore, previous year's non-performing loans and net interest margin depresses Current NPLs whereas credit adequacy ratio promotes Current NPLs in the short-run. The study recommends a firm policy reform that pays attention to credit appraisal mechanisms to improve the quality of bank loan portfolios through tougher regulations and guidelines to support healthier investment. Thus, management of banks should do well to cut interest rate on loans to make them less expensive for borrower's to meet their commitments, whiles regulators undertake policies that can ensure efficiency in bank's operations. Furthermore, Policymakers must consider GDP growth carefully by implementing a set of policies geared towards improving investment and finally profitability.

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Section: Bank Specific Variablesmentioning

confidence: 99%

Macroeconomic and Bank Specific Determinants of Non-performing Loans in Ghanaian Banking Sector

Okyere¹,

Mensah²

2022

IJAFRM

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“…Liquidity management, on the other hand, has a negative impact on banks' financial performance. The significant factors affecting nonperforming loans in the banking sector of lower middle-income countries, according to Olarewaju (2020), were lagged nonperforming loans, lending rate, capital adequacy, credit growth, cost income ratio and real interest rate. In addition, Amano (2014) studied the determinants of Ethiopian CB lending behavior such as bank size, deposit ratio, liquidity ratio, interest rate and reserve requirement, real GDP rate and inflation rate.…”

Section: Theoretical Frameworkmentioning

confidence: 99%

Determinants of commercial bank loan and advance disbursement: the case of private Ethiopian commercial banks

Birhanu

Deressa

Azadi

et al. 2021

IJBM

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PurposeThis paper aimed to investigate the determinants of loans and advances from commercial banks in the case of Ethiopian private commercial banks.Design/methodology/approachThe study randomly selected seven commercial banks to represent the population stratified on their asset, deposit and paid-up capital amounts. The study utilized an unbalanced panel data model as each bank started operation at a different period of time and considered the period 1995–2016 for secondary details.FindingsThe findings showed that the deposit size, credit risk, portfolio investment, average lending rate, real gross domestic product (GDP) and inflation rate had significant and optimistic effects on the lending and advancement of private commercial banks. On the contrary, liquidity ratio had significant and negative effects on private commercial bank loans and advances. Finally, the study forwarded a feasible recommendation for concerned organs to focus on deposit size, credit risk, portfolio investment, average lending rate, real GDP, inflation rate and liquidity ratio. The results of this study will help banking industry policymakers and planners understand how to minimize inflation and unemployment by improving development and sustainable economic growth.Originality/valueThe findings of this study can also affect the general attitudes of a society by increasing knowledge and improve the quality of life for the general public.

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“…En revanche, les petites banques, sont exposées au problème de sélection adverse en raison du manque de compétences et d'expériences nécessaires pour évaluer efficacement la qualité des crédits. Utilisant la méthode des moments généralisés sur 110 banques commerciales, Olarewaju (2020) montre que le cout du crédit et l'adéquation du capital influencent les PNP dans les pays à revenu intermédiaire.…”

Section: Revue De La Littératureunclassified

“…Plusieurs travaux empiriques ont montré que les facteurs microéconomiques propres aux banques tels que la taille de l'institution, les marges de profit, l'efficacité et l'efficience managériale, la rentabilité, les conditions de crédit, le profil de risque, et le pouvoir de marché sont des déterminants majeurs des prêts non performants (Louzis et al, 2012; Olarewaju, 2020).…”

Section: Revue De La Littératureunclassified

Les Déterminants des Prêts Non Performants du Système Bancaire de l'UMOA

Tinta

Sanou

2021

African Development Review

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Résumé Cette étude examine les facteurs macroéconomiques et spécifiques qui affectent la qualité du portefeuille de crédit des banques de l'UMOA. L'étude utilise les données de la Banque mondiale, du Fonds Monétaire International, de Bankscope et les comptes de résultat et bilan de la Banque Centrale des Etats de l'Afrique de l'Ouest (BCEAO) et couvrent la période de 2000 à 2019. Régressant un modèle statique (1) et un modèle dynamique (2) en utilisant respectivement la méthode des effets fixes et la méthode des moments généralisés d'Arellano–Bover/Blundell–Bond, les résultats montrent que la croissance économique, le service de la dette payée, la situation commerciale et les taxes impactent les prêts non performants. L'incertitude des politiques a un effet néfaste à court et à long terme sur les prêts non performants, cependant amorti par la concentration bancaire. Les facteurs bancaires tels que la taille et la rentabilité participent à la réduction des prêts non performants. Cependant le taux d'intérêt, l'inefficience bancaire, le ratio des prêts et les réserves de provisions pour pertes contribuent à accroitre le volume des prêts défectueux. L'étude recommande l'amélioration de l'environnement macroéconomique, la culture de la prudence et l'efficience managériale.

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Investigating the factors affecting nonperforming loans in commercial banks: The case of African lower middle‐income countries

Cited by 11 publications

References 27 publications

Macroeconomic and Bank Specific Determinants of Non-performing Loans in Ghanaian Banking Sector

Macroeconomic and Bank Specific Determinants of Non-performing Loans in Ghanaian Banking Sector

Determinants of commercial bank loan and advance disbursement: the case of private Ethiopian commercial banks

Les Déterminants des Prêts Non Performants du Système Bancaire de l'UMOA

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