Macroeconomic Factor Affecting Non-Performing Loans (NPLs): Evidence from Commercial Bank in Pakistan Based ARDL Cointegration Approach

Abstract

The main objective of this study is to measure the NPLS in Pakistan’s commercial bank. The macroeconomic factor of Country GDP, corruption, unemployment, political instability and inflation it’s nettle the level of NPLS in commercial bank in Pakistan. The unemployment, increasing of interest rate, low economic growth and money laundering they elaborate the changing in NPLS. high inflation, unemployment ratio, huge cases of corruption, political instability are faced by the country.we are working time series data of Pakistan from 1972 to 2022 by using ARDL long and short run. We find that there is long run relationship exist between the variables, and co-integration also have positive and significant impact on NPLS.Finding The observation of this study shows that efficiency of managing the productivity had important effects on NPLS. The policy maker should be establishing the steps for creditors to ensure superb loan management and they will grant to the banks. If the better steps for loan will be establish then the bank will be stable and so their works efficiently. The Finding shows that GDP has positive/negative and significant impact on NPLS of commercial banking in Pakistan in long run/ short run. However, corruption has positive/negative and insignificant impact on NPLs in long run/ short run, we also find that inflation has negative and significant impact on NPLs in long run/short run, we also observed that interest rate has negative and significant impact on NPLs in long run/short run.

Does Banking Digitization Reduce Non-Performing Financing in Sharia Commercial Banks?

“…However, it does not necessarily require a low FDR value, because a low FDR condition causes banking. This finding is in line with the findings of previous researchers (Azmi et al, 2023;Ikhsan & Karyatni, 2023;Print et al, 2023;Umaternate & Mongid, 2023;Zhang, 2022).…”

“…In addition, for banks, digitization can provide more accurate information related to customers' financial conditions (Idawati & Syafputri, 2022), so that they can mitigate the risk of non-performing financing earlier and better, as well as more efficiently and effectively. This research found that the increasingly rapid development of digitization can reduce Nonperforming Financing (NPF) in Islamic commercial banks in Indonesia, as in previous studies (Ilmiah & Islam, 2023;Lei & Li, 2021;Limited, 2022;Print et al, 2023;Sherif, 2023;Sudirman et al, 2023;Synatrya, 2021;Wu et al, 2023;Xu et al, 2022). Furthermore, digitalization is of course capable of providing significant risks if it goes hand in hand with the development of cybercrime in the future.…”

“…The higher the ROA, the NPF will decrease and vice versa. This proves that the profits from assets generated by Islamic commercial banks are able to sustain non-performing financing experienced by influencing the ability of Islamic commercial banks to generate profits from disbursed financing and the risks that may arise as a result (Achmad Ali Fikri, Syamsul Arifin, 2022;Prastyo & Anwar, 2021;Print et al, 2023;Umaternate & Mongid, 2023;Yunita, 2021).…”

“…The Financing to Deposit Ratio (FDR) has a positive and significant effect on non-performing financing. The greater the proportion of FDR, the greater the non-performing financing of Islamic commercial banks (Print et al, 2023). This condition explains that the more banks disburse and to third parties, the more banks will automatically depend on the funds that are mostly channeled, thus enabling the increase in non-performing financing, and vice versa.…”