Industry-Specific and Macroeconomic Determinants of Non-Performing Loans: A Comparative Analysis of ARDL and VECM
With the growth of an economy, the banking industry expands and the competitiveness becomes intense with the increased number of banks in the economy. The objective of this research was to discover the influence of industry-specific and macroeconomic determinants of non-performing loans (NPLs) in th...
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doaj-487d3babff544e899aa239180347ddcb2020-11-25T02:05:15ZengMDPI AGSustainability2071-10502019-12-0112132510.3390/su12010325su12010325Industry-Specific and Macroeconomic Determinants of Non-Performing Loans: A Comparative Analysis of ARDL and VECMChangjun Zheng0Probir Kumar Bhowmik1Niluthpaul Sarker2School of Management, Huazhong University of Science and Technology, Wuhan 430074, ChinaSchool of Management, Huazhong University of Science and Technology, Wuhan 430074, ChinaDepartment of Accounting and Information Systems, Jagannath University, Dhaka 1100, BangladeshWith the growth of an economy, the banking industry expands and the competitiveness becomes intense with the increased number of banks in the economy. The objective of this research was to discover the influence of industry-specific and macroeconomic determinants of non-performing loans (NPLs) in the entire banking system of Bangladesh. We performed an analysis for the period from 1979 to 2018 by an autoregressive distributed lag (ARDL) model and checked the robustness of the results in the vector error correction (VEC) model. The outcomes of this research suggest that both industry-specific and macroeconomic factors influence NPLs significantly. Among the industry-specific determinants, bank loan growth, net operating profit, and deposit rates negatively impact NPLs with statistical significance while bank liquidity and lending rates have a significant positive affiliation with NPLs. Gross domestic product (GDP) growth and unemployment, among the macroeconomic variables, have a negative connection with NPLs. Whereas, domestic credit and exchange rates have a significant positive association with NPLs. The contribution of this research is that the outcomes found by means of econometric models can be used for predicting and measuring NPLs in upcoming years, not only for Bangladesh but also for developing and emerging economies. Individual banks, as well as the banking sector, by and large, can get a guideline from this research.https://www.mdpi.com/2071-1050/12/1/325loan expansiongdpnplardlvecmjohansen test of co-integrationunit root |
collection |
DOAJ |
language |
English |
format |
Article |
sources |
DOAJ |
author |
Changjun Zheng Probir Kumar Bhowmik Niluthpaul Sarker |
spellingShingle |
Changjun Zheng Probir Kumar Bhowmik Niluthpaul Sarker Industry-Specific and Macroeconomic Determinants of Non-Performing Loans: A Comparative Analysis of ARDL and VECM Sustainability loan expansion gdp npl ardl vecm johansen test of co-integration unit root |
author_facet |
Changjun Zheng Probir Kumar Bhowmik Niluthpaul Sarker |
author_sort |
Changjun Zheng |
title |
Industry-Specific and Macroeconomic Determinants of Non-Performing Loans: A Comparative Analysis of ARDL and VECM |
title_short |
Industry-Specific and Macroeconomic Determinants of Non-Performing Loans: A Comparative Analysis of ARDL and VECM |
title_full |
Industry-Specific and Macroeconomic Determinants of Non-Performing Loans: A Comparative Analysis of ARDL and VECM |
title_fullStr |
Industry-Specific and Macroeconomic Determinants of Non-Performing Loans: A Comparative Analysis of ARDL and VECM |
title_full_unstemmed |
Industry-Specific and Macroeconomic Determinants of Non-Performing Loans: A Comparative Analysis of ARDL and VECM |
title_sort |
industry-specific and macroeconomic determinants of non-performing loans: a comparative analysis of ardl and vecm |
publisher |
MDPI AG |
series |
Sustainability |
issn |
2071-1050 |
publishDate |
2019-12-01 |
description |
With the growth of an economy, the banking industry expands and the competitiveness becomes intense with the increased number of banks in the economy. The objective of this research was to discover the influence of industry-specific and macroeconomic determinants of non-performing loans (NPLs) in the entire banking system of Bangladesh. We performed an analysis for the period from 1979 to 2018 by an autoregressive distributed lag (ARDL) model and checked the robustness of the results in the vector error correction (VEC) model. The outcomes of this research suggest that both industry-specific and macroeconomic factors influence NPLs significantly. Among the industry-specific determinants, bank loan growth, net operating profit, and deposit rates negatively impact NPLs with statistical significance while bank liquidity and lending rates have a significant positive affiliation with NPLs. Gross domestic product (GDP) growth and unemployment, among the macroeconomic variables, have a negative connection with NPLs. Whereas, domestic credit and exchange rates have a significant positive association with NPLs. The contribution of this research is that the outcomes found by means of econometric models can be used for predicting and measuring NPLs in upcoming years, not only for Bangladesh but also for developing and emerging economies. Individual banks, as well as the banking sector, by and large, can get a guideline from this research. |
topic |
loan expansion gdp npl ardl vecm johansen test of co-integration unit root |
url |
https://www.mdpi.com/2071-1050/12/1/325 |
work_keys_str_mv |
AT changjunzheng industryspecificandmacroeconomicdeterminantsofnonperformingloansacomparativeanalysisofardlandvecm AT probirkumarbhowmik industryspecificandmacroeconomicdeterminantsofnonperformingloansacomparativeanalysisofardlandvecm AT niluthpaulsarker industryspecificandmacroeconomicdeterminantsofnonperformingloansacomparativeanalysisofardlandvecm |
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