FACTORS INFLUENCING NON-PERFORMING LOANS: EMPIRICAL EVIDENCE FROM COMMERCIAL BANKS IN MALAYSIA

Year 2021, Volume: 8 Issue: 3, 160 - 166, 30.09.2021

Mugahed Mahyoub Rasidah Mohd Saıd

https://doi.org/10.17261/Pressacademia.2021.1448

Abstract

Purpose- The purpose of this research is to examine the factors influencing non-performing loans (NPLs) ratio for Malaysian commercial banks
from the period 2010 to 2018.
Methodology- Bank-specific factors and macroeconomic factors were included in the analysis. Using panel data of fifteen commercial banks in
Malaysia.
Findings- The finding reveals that capital adequacy ratio is a significant factor in influencing the sample banks’ level of non-performing loans. All
other bank-specific factors employed in the analysis were found to be insignificant. In addition, based on the results provided by real gross
domestic products and inflation, we can conclude that economic situation does not impact the non-performing loans level of the sample
commercial banks.
Conclusion- It has been concluded that the loan quality of the sample bank is questionable. In order to ensure an effective operating and high
performance of banks, banks require a deep concentration on their loan quality that would not only generate income, but also minimize negative
and ineffective outcome to the banks. In addition, this study can be valuable to supervisory authorities, governments, and the banking industries
in forecasting non-performing loans as this study shows the determinants that shape the level of Non-performing loans.

Keywords

Bank-specific factors, macroeconomic, panel data analysis, non-performing loans, Malaysian Commercial Banks

References

• Alshebmi, A. S., Adam, M. H. M., Mustafa, A. M., Thomran, M., & Fathelbab, O. E. A. (2020). Assessing the Non-Performing Loans and their Effect on Banks Profitability: Empirical Evidence from the Saudi Arabia Banking Sector. International Journal of Innovation, Creativity and Change, 11(8), 69-93.
• Bank Negara Malaysia. (2020). List of licensed financial institutions. Retrieved from https://www.bnm.gov.my/index.php?ch=fs&pg=fs_mfs_list&ac=118&lang=en (Accessed: August 4, 2020).
• Bayar, Y. (2019). Macroeconomic, Institutional and Bank-Specific Determinants of Non-Performing Loans in Emerging Market Economies: A Dynamic Panel Regression Analysis. Journal of Central Banking Theory and Practice, 8(3), 95–110.
• Beck, R., Jakubik, P., & Piloiu, A. (2015). Key determinants of non-performing loans: new evidence from a global sample. Open Economies Review, 26(3), 525-550.
• Boudriga, A., Taktak, N. B., & Jellouli, S. (2010). Bank specific, business and institutional environment determinants of banks nonperforming loans: evidence from MENA countries. In Economic Research Forum, Working Paper, 54, 1-28.
• Curak, M., Pepur, S., & Poposki, K. (2013). Determinants of non-performing loans _evidence from South-eastern European banking systems. Banks and Bank Systems, 8(1), 45–53.
• Dimitrios, A., Helen, L., & Mike, T. (2016). Determinants of non-performing loans: Evidence from Euro-area countries. Finance Research Letters, 18, 116–119.
• Espinoza, R. A., & Prasad, A. (2010). Nonperforming Loans in the GCC banking system and their macroeconomic effects. IMF Working Papers, 10(224), 1-24. Hu, J. L., Li, Y., & Chiu, Y. H. (2004). Ownership and nonperforming loans: Evidence from Taiwan's banks. The Developing Economies, 42(3), 405- 420.
• International Monetary Fund (2019). The IMF 2019 financial soundness indicators compilation guide. Retrieved from https://www.imf.org/en/Data/Statistics/FSI-guide (Accessed August 20, 2020).
• Jabbouri, I., & Naili, M. (2019). Determinants of Nonperforming Loans in Emerging Markets: Evidence from the MENA Region. Review of Pacific Basin Financial Markets and Policie, 22( 4), 1950026.
• Keeton, W. R., & Morris, C. S. (1987). Why do banks’ loan losses differ? Economic Review, 72(5), 3-21.
• Kjosevski, J., & Petkovski, M. (2017). Non-performing loans in Baltic States: Determinants and macroeconomic effects. Baltic Journal of Economics,17(1), 25–44.
• Kjosevski, J., Petkovski, M., & Naumovska, E. (2019). Bank-specific and macroeconomic determinants of non-performing loans in the Republic of Macedonia: Comparative analysis of enterprise and household NPLs. Economic Research-Ekonomska Istrazivanja, 32(1), 1185–1203.
• Košťálová, Z. (2018). Macroeconomic Determinants of Non-Performing Loans in the Slovak Banking Sector. edamBa@ eUBa, 247-255.
• Lai, L. H., Hung, L. C., & Kuo, C. J. (2016). Do Well-Financial Holding Company Organized Banks in Taiwan Take More Risk? Review of Pacific Basin Financial Markets and Policies, 19(04), 1650024.
• Laryea, E., Ntow-Gyamfi, M., & Alu, A. A. (2016). Nonperforming loans and bank profitability: evidence from an emerging market. African Journal of Economic and Management Studies, 7(4), 462–481.
• Louzis, D. P., Vouldis, A. T., & Metaxas, V. L. (2012). Macroeconomic and bank-specific determinants of non-performing loans in Greece: A comparative study of mortgage, business and consumer loan portfolios. Journal of Banking and Finance, 36(4), 1012–1027.
• Makri, V., Tsagkanos, A., & Bellas, A. (2014). Determinants of non-performing loans: The case of Eurozone. Panoeconomicus, 61(2), 193–206.
• Messai, A. S., & Jouini, F. (2013). Micro and macro determinants of non-performing loans. International Journal of Economics and Financial Issues, 3(4), 852–860.
• Mpofu, T. R., & Nikolaidou, E. (2018). Determinants of credit risk in the banking system in Sub-Saharan Africa. Review of Development Finance, 8(2), 141–153.
• Us, V. (2018). The Determinants of Nonperforming Loans Before and After the Crisis: Challenges and Policy Implications for Turkish Banks. Emerging Markets Finance and Trade, 54(7),1608–1622.
• Wood, A., & Skinner, N. (2018). Determinants of non-performing loans: evidence from commercial banks in Barbados. The Business & Management Review, 9(3), 44-64.
• Yi, W. K., Mahmud, M. A. B. M., & Suppiah, T. A. (2020). A Study on the Determinates of Credit Risk in Malaysian Banking System for the Period 1996 to 2017. International Journal of Psychosocial Rehabilitation, 24(2).
• Zhang, X., Guo, D., Xiao, Y., & Wang, M. (2017). Do Spatial Spillover Effects of Nonperforming Loans for Commercial Banks Exist? Evidence from Chinese Provinces. Emerging Markets Finance and Trade, 53(9), 2039–2051