Teymour Mohammadi; Farzad i Eskandar; Davoud Karimi
Abstract
The purpose of this study is to investigate the effects of macroeconomic and bank-specific factors on non-performing loans for the period of 2005 to 2013. A dynamic panel data model is used in 18 banks and to assess non-performing loan, the ratio of non-performing loans to all granted loans has been ...
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The purpose of this study is to investigate the effects of macroeconomic and bank-specific factors on non-performing loans for the period of 2005 to 2013. A dynamic panel data model is used in 18 banks and to assess non-performing loan, the ratio of non-performing loans to all granted loans has been utilized. The results of Generalized Method of Moments (GMM) indicate that among all considered macroeconomic variables, economic growth has a negative effect, the gap between real interest rate in informal market and the real interest rate in formal market and also exchange volatility have positive effect on the ratio of NPLs to all granted loans. The results of bank-specific factors show that capital adequacy ratio, deposit to expenditure ratio, as an indication of economic efficiency, and share of each bank in total loans granted, as a proxy for banks' size, all have a significant negative influence on non-performing loans. The result confirms that “Bad Management hypothesis”, in which the increase of total expenditure efficiency leads to reduction in non-performing loans and “Market Strength and Stability hypothesis”, in which the banks with higher market power has less due date non-performing loans are both confirmed.
Esmaeil Mirza’i; Teymour Mohammadi; Abbas Shakeri
Abstract
In this paper we assess the interaction between different macroeconomic variables and the quality of loan portfolio of banks in Iran by using a panel vector autoregressive (PVAR) method that controls for bank-level characteristics. For this purpose, we use a quarterly panel data of banks and some ...
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In this paper we assess the interaction between different macroeconomic variables and the quality of loan portfolio of banks in Iran by using a panel vector autoregressive (PVAR) method that controls for bank-level characteristics. For this purpose, we use a quarterly panel data of banks and some of the most important macroeconomic variables over the period 2002-2013. Variables of this research are the ratio of non-performing loans (NPLs) to total loans as the index for quality of loan portfolio of banks, GDP growth, real lending interest rate, monetary base and growth rate of banks’ loan. We find that a positive shock to real lending interest rate and loan growth rate improve the quality of loan portfolio of banks. However, printing more money by central bank (a positive shock to monetary base) leads to a drop in portfolio quality, while a positive shock to GDP growth rate doesn’t have a significant effect on NPLs. On the other hand, the feedback effect from NPLs on macroeconomic variables is verified, as a positive shock to NPLs (worsening the quality of loan portfolio) causes to exacerbate economic recession, to increase monetary base, and to decrease loan growth rate significantly, but it doesn’t have any significant effect on real lending interest rate .