IDEAS home Printed from https://ideas.repec.org/a/bdy/modfin/v1y2023i1p56-69id27.html
   My bibliography  Save this article

Determinants of non-performing loans in conventional and Islamic banks: Emerging market evidence

Author

Listed:
  • Md. Feroz Khan
  • Md. Sumon Ali
  • Md. Naiem Hossain
  • Mithun Bairagi

Abstract

This study examines the determinants of non-performing loans (NPLs) among macroeconomic and bank-specific factors for the Islamic and conventional banking sectors in Bangladesh. We implement a dynamic panel data model with a two-stage system GMM for the period 2010-2021. Among the bank-specific factors, this study finds that return on assets, return on equity, bank size, and inefficiency help to reduce NPLs. In contrast, gross loan growth, leverage, and capital adequacy ratios contribute to increasing NPLs. Among macroeconomic determinants, inflation, and GDP growth have a significant negative impact on NPLs. Moreover, unemployment and exchange rates are also found to be significant determinants of NPLs. At the bank level, growth in gross loans reduces NPLs in Islamic banks, while the opposite is true for conventional banks. Our findings have significant implications for depositors and regulators in making appropriate decisions.

Suggested Citation

  • Md. Feroz Khan & Md. Sumon Ali & Md. Naiem Hossain & Mithun Bairagi, 2023. "Determinants of non-performing loans in conventional and Islamic banks: Emerging market evidence," Modern Finance, Modern Finance Institute, vol. 1(1), pages 56-69.
  • Handle: RePEc:bdy:modfin:v:1:y:2023:i:1:p:56-69:id:27
    as

    Download full text from publisher

    File URL: https://mf-journal.com/article/view/27/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Rifqi Muhammad & Ahsin Suluki & Peni Nugraheni, 2020. "Internal factors and non-performing financing in Indonesian Islamic rural banks," Cogent Business & Management, Taylor & Francis Journals, vol. 7(1), pages 1823583-182, January.
    2. Mejra Festiæ & Sebastijan Repina, 2009. "Financial Stability in the Baltics," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(6), pages 554-576, December.
    3. Beck, Roland & Jakubik, Petr & Piloiu, Anamaria, 2013. "Non-performing loans: what matters in addition to the economic cycle?," Working Paper Series 1515, European Central Bank.
    4. Vithessonthi, Chaiporn, 2016. "Deflation, bank credit growth, and non-performing loans: Evidence from Japan," International Review of Financial Analysis, Elsevier, vol. 45(C), pages 295-305.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wang, Congcong & Wang, Chong & Long, Huaigang & Zaremba, Adam & Zhou, Wenyu, 2024. "Green bond credit spreads and bank loans in China," International Review of Financial Analysis, Elsevier, vol. 94(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mustafa Tevfik Kartal & Derviş Kirikkaleli & Fatih Ayhan, 2023. "Nexus between non‐performing loans and economic growth in emerging countries: Evidence from Turkey with wavelet coherence approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1250-1260, April.
    2. Gamze Öztürk DANIŞMAN, 2018. "Determinants of Bank Stability: A Financial Statement Analysis of Turkish Banks," Sosyoekonomi Journal, Sosyoekonomi Society, issue 26(38).
    3. Dimitrios Anastasiou & Helen Louri & Mike Tsionas, 2019. "Nonperforming loans in the euro area: Are core–periphery banking markets fragmented?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 24(1), pages 97-112, January.
    4. Evangelos Charalambakis & Yiannis Dendramis & Elias Tzavalis, 2017. "On the determinants of NPLS: lessons from Greece," Working Papers 220, Bank of Greece.
    5. Manganaris, Panayotis & Beccalli, Elena & Dimitropoulos, Panagiotis, 2017. "Bank transparency and the crisis," The British Accounting Review, Elsevier, vol. 49(2), pages 121-137.
    6. Said-Nour Samake, 2022. "Prudential Regulation and Bank Efficiency : Evidence from WAEMU Zone," Working Papers hal-03540209, HAL.
    7. Dima, Bogdan & Dincă, Marius Sorin & Spulbăr, Cristi, 2014. "Financial nexus: Efficiency and soundness in banking and capital markets," Journal of International Money and Finance, Elsevier, vol. 47(C), pages 100-124.
    8. Muhammad Waqas & Nudrat Fatima & Aryan Khan & Muhammad Arif, 2017. "Determinants of Non-performing Loans: A Comparative Study of Pakistan, India, and Bangladesh," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 6(1), pages 51-68, January.
    9. Meyland, Dominik & Schäfer, Dorothea, 2021. "Home Bias in Sovereign Exposure and the Probability of Bank Default – Evidence From EU-Stress Test Data," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242453, Verein für Socialpolitik / German Economic Association.
    10. Albulena Shala & Valentin Toçi & Arben Mustafa, 2022. "Macroeconomic, Structural, and Bank-specific Determinants of Non-performing Loans in Central and Eastern Europe," Journal of Economics / Ekonomicky casopis, Institute of Economic Research, Slovak Academy of Sciences, vol. 70(5), pages 411-429, May.
    11. Faten Ben Bouheni & Hassan Obeid & Elena Margarint, 2022. "Nonperforming loan of European Islamic banks over the economic cycle," Annals of Operations Research, Springer, vol. 313(2), pages 773-808, June.
    12. Abuzayed, Bana & Ben Ammar, Mouldi & Molyneux, Philip & Al-Fayoumi, Nedal, 2024. "Corruption, lending and bank performance," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 802-830.
    13. Pallavi Chavan & Leonardo Gambacorta, 2016. "Bank lending and loan quality: the case of India," BIS Working Papers 595, Bank for International Settlements.
    14. Samaresh Bardhan & Rajesh Sharma & Vivekananda Mukherjee, 2019. "Threshold Effect of Bank-specific Determinants of Non-performing Assets: An Application in Indian Banking," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 18(1_suppl), pages 1-34, April.
    15. Beck, Roland & Langfield, Sam & Ĉervená, Marianna & Cocozza, Emidio & Francart, Alexandre & Pulst, Daniela & Ostrovskis, Gundars & Manolov, Stoyan & Evdjic, Stefanie & Jimborean, Ramona & Hake, Mariya, 2012. "Financial stability challenges for EU acceding and candidate countries: making financial systems more resilient in a challenging environment," Occasional Paper Series 136, European Central Bank.
    16. Bholat, David & Lastra, Rosa & Markose, Sheri & Miglionico, Andrea & Sen, Kallol, 2016. "Non-performing loans: regulatory and accounting treatments of assets," Bank of England working papers 594, Bank of England.
    17. Hosseinpour , Ali & Aghababaei , Mohammad Ebrahim, 2018. "The Impact of Provisioning Policies on Non-Performing Loans," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 13(3), pages 343-374, July.
    18. Maria Karadima & Helen Louri, 2021. "Determinants of Non-Performing Loans in Greece: the intricate role of fiscal expansion," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 160, Hellenic Observatory, LSE.
    19. Miyajima Ken, 2017. "An Empirical Investigation of Oil-Macro-financial Linkages in Saudi Arabia," Review of Middle East Economics and Finance, De Gruyter, vol. 13(2), pages 1-15, August.
    20. Antonio Sánchez Serrano, 2018. "EU banks after the crisis: sinners in the hands of angry markets," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 1(9), pages 24-51, May.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bdy:modfin:v:1:y:2023:i:1:p:56-69:id:27. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Adam Zaremba (email available below). General contact details of provider: https://mf-journal.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.