Non-performing loans and macroeconomic variables in Malaysia: recent evidence
Financial institutions like commercial banks play important role in the financial system by helping countries to grow and provide capital and platform for investors. However, banks need to be able to generate income in their lending business and perform efficiently. Nonperforming loans (NPLs) is o...
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| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
| Published: |
Fakulti Ekonomi dan Pengurusan, Universiti Putra Malaysia
2021
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| Online Access: | http://psasir.upm.edu.my/id/eprint/94374/1/Non-performing%20loans%20and%20macroeconomic%20variables%20in%20Malaysia.pdf http://psasir.upm.edu.my/id/eprint/94374/ http://www.ijem.upm.edu.my/vol15no1/2.%20Non-Performing%20Loans.pdf |
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| Summary: | Financial institutions like commercial banks play important role in the financial system by
helping countries to grow and provide capital and platform for investors. However, banks
need to be able to generate income in their lending business and perform efficiently. Nonperforming loans (NPLs) is one of the tools to determine the efficiency of lending
institutions in which reflect the quality of the credit portfolio as well as the health of the
banking sector. High levels of NPLs in the banking system places the banks in risky situation
which may lead to limited financial activities and consequently lower investment and
growth. Motivated by this scenario, this study examines the determinants of NPLs in the
Malaysian banking system. Using annual data from 1988 to 2018, the study estimates the
short and long-run dynamics of several determinants using the Auto-Regressive Distribution
Lag (ARDL) cointegration approach. The empirical results demonstrate mixed results. In
the long-run, exchange rate is positive and significantly related to non-performing loans,
while industrial production and money supply are negative and significant. However,
inflation does not have significant effect on NPLs in Malaysia. The findings of this study is
useful in assisting the banking institutions and policy makers to design macro and fiscal
policies. |
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