The impact of macroeconomic and institutional environment on NPL of developing and developed countries

Abstract

The study investigates what causes non-performing loans (NPLs) in developed and developing countries. To identify the relationship between bank-specific, macroeconomic determinants, and institutional environment non-performing loans on country-level panel data of Developing nations for the period extending from 2010 to 2020, the author used panel system GMM methodology. The long-held hypothesis that NPLs contribute to economic growth is tested using the Panel Granger causality test. Further panel cointegration tests were run to see whether the two variables have a long-term relationship. According to the study, loan defaults frequently happen at a lower rate during a rapid economic expansion, resulting in lower levels of non-performing loans. If there is a robust regulatory framework for systemic risk, a larger banking sector should be more stable than a smaller one. The current study also demonstrates the institutional environment’s importance in improving banks’ credit quality. In developing and developed countries, NPLs are significantly reduced when the institutional environment is improved.

Integration of financing and macroeconomic shock in Islamic banking in Indonesia

“…The results were carried out by Tanjung et al (2022), where inflation significantly affects bank credit. Table 5 shows The results of the variable causality test with the Granger causality test; it was found that, in general, the causal relationship formed in this study was that the variables used were unidirectional (Goyal et al, 2023). That is, changes between one variable and another are responded to without any reciprocal relationship.…”

“…Inflation has a one-way relationship with ROA, but ROA does not. Inflation is believed to be a macroeconomic variable that can affect the profitability of Islamic banks but cannot be strongly influenced by bank performance (Goyal et al, 2023).…”

“…Macro variables, as in this study, inflation, and BI rate are not influenced by internal banking variables. If there is a strong regulatory framework for systemic risk, larger banking sectors should be more stable than smaller ones (Goyal et al, 2023).…”

Determinan Non-Performing Loan (NPL) Perbankan Kawasan ASEAN

“…Capital Adequacy Ratio (CAR) digunakan untuk melihat determinan NPL berdasarkaan faktor bank specific, seperti pada penelitian Makri et al (2014), Radivojevic & Jovovic (2017), Raiter (2021), Kryzanowski et al (2023), Goyal et al (2023). Penelitian ini menggunakan data CAR triwulanan.…”

“…Hasil pengujian statistik menunjukkan bahwa Capital Adequacy Ratio (CAR) tidak berpengaruh terhadap NPL. Hasil ini sejalan dengan penelitian Raiter (2021) dan Goyal et al (2023). Hasil ini menunjukkan bahwa perbankan di negara Kawasan ASEAN memiliki cadangan modal yang mencukupi untuk melindungi diri dari risiko kredit dan risiko-risiko lainnya.…”