ISSN: 2222-6990
Open access
This paper empirically studies the macroeconomic factors determining the non-performing loans (NPLs) of the banking and financial institutions in Malaysia. Using a set of time series data from Q12006 to Q42015, Auto-Regressive Distributed Lag (ARDL) method was employed to discover the significant relationships between the variables in the long run as well as short run elasticity within the model. The study concludes that the level of NPLs in Malaysia is affected by Malaysian macroeconomic variables namely Gross Domestic Product (GDP), Base Lending Rate (BLR), Inflation (INF) and Household Income Distribution (ID). The result implies that GDP is significant and negatively affect NPLs, meanwhile BLR and ID are significant and positively related to NPLs, in line with the expected results. Nonetheless, INF resulted in insignificant relationship with NPLs contrary to our expectation. The result of this research is useful to assist financial institutions and the regulators for policy formulation so as to minimize the negative effects of NPLs to the Malaysian financial system.
Badar, M., & Yasmin, J. A. (2013). Impact of Macroeconomic Forces on Nonperforming Loans: An Empirical Study of Commercial Banks in Pakistan. WSEAS Transactions on Business and Economics, 10(1), 40–48.
Bayoumi, T., & Melander, O. (2008). Credit Matters: Empirical Evidence on U.S. Macro-Financial Linkages. IMF Working Paper WP/08/169.
Bebczuk, R., & Cavallo, E. (2016). Is Business Saving Really None of Our Business? Applied Economics, 48(24), 2266–2284.
Beck, R., Jakubik, P., & Piloiu, A. (2013). Non-performing loans: What Matters in Addition to the Economic Cycle? European Central Bank Working Paper Series 1515.
Blanco, R., & Gimeno, R. (2012). Determinants of Default Ratios in the Segment of Loans to Households in Spain. Banco de España Working Paper Series 2012.
Espinoza, R., & Prasad, A. (2010). Nonperforming Loans in the GCC Banking System and their Macroeconomic Effects. IMF Working Papers, 25.
Farhan, M., Sattar, A., Chaudhry, A. H., & Khalil, F. (2012). Economic Determinants of Non-Performing Loans: Perception of Pakistani Bankers. European Journal of Business and Management, 4(19), 87–99.
Fofack, H. (2005). Nonperforming Loans In Sub-Saharan Africa?: Causal Analysis And Macroeconomic Implications. World Bank Policy Research Working Paper 3769.
Gaganis, C., Pasiouras, F., Doumpos, M., & Zopounidis, C. (2010). Modelling Banking Sector Stability with Multicriteria Approaches. Technical University of Crete, Greece Working Paper 2010.01.
Greenidge, K., & Grosvenor, T. (2010). Forecasting Non-Performing Loans in Barbados. Journal of Business, Finance & Economics in Emerging Economies, 5(1), 79–108.
Ismail, N., Azlan, N. D. A., Husin, M. M., Ishak, I., & Hashim, S. L. M. (2017). Bank Efficiencies and Non-Performing Loan of Commercial Banks in Malaysia. Journal of Humanities, Language, Culture and Business (HLCB), 1(5), 34–40.
Jakubík, P., & Reininger, T. (2014). What Are the Key Determinants of Nonperforming Loans in CESEE? IES Working Paper Series, 1–25.
Jiménez, G., & Saurina, J. (2006). Credit Cycles, Credit Risk, and Prudential Regulation. International Journal of Central Banking, 2(January), 65–98.
Khemraj, Tarron & Pasha, S. (2009). The Determinants of Non-Performing Loans: an Econometric Case Study of Guyana. MRPA Working Paper No 531128.
Klein, N. (2013). Non-Performing Loans in CESEE: Determinants and Impact on Macroeconomic Performance. IMF Working Papers, 13(72), 1.
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.
Nkoro, E., & Uko, A. K. (2016). Autoregressive Distributed Lag (ARDL) Cointegration Technique: Application and Interpretation. Journal of Statistical and Econometric Methods, 5(4), 63–91.
Nkusu, M. (2011). Nonperforming Loans and Macrofinancial Vulnerabilities in Advanced Economies. IMF Working Papers Vol. 29.
Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics, 16(3), 289–326.
Rinaldi, & Sanchis-Arellano. (2006). Household Debt Sustainability: What Explains Household Non-performing Loans? An Empirical Analysis. ECB Working Paper.
Shingjergji, A. (2013). The Impact of Macroeconomic Variables on the Non Performing Loans in the Albanian Banking System During 2005 - 2012. Academic Journal of Interdisciplinary Studies, 2(9), 335–339.
Skarica, B. (2014). Determinants of Non-Performing Loans in Central and Eastern European Countries. Financial Theory and Practice, 38(1), 37–59.
Sufian, F., Kamarudin, F., & Nassir, A. Md. (2016). Determinants of Efficiency in the Malaysian Banking Sector: Does Bank Origins Matter? Intellectual Economics, 10(1), 38–54.
In-Text Citation: (Zainol, Nor, Ibrahim, & Daud, 2018)
To Cite this Article: Zainol, J. M., Nor, A. M., Ibrahim, S. N., & Daud, S. (2018). Macroeconomics Determinants of Non-Performing Loans in Malaysia: An ARDL Approach. International Journal of Academic Research in Business and Social Sciences, 8(10), 692–706.
Copyright: © 2018 The Author(s)
Published by Human Resource Management Academic Research Society (www.hrmars.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode