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Factors affecting bank loan quality: a panel analysis of emerging markets

Author

Listed:
  • Petr Jakubik

    (European Insurance and Occupational Pensions Authority (EIOPA)
    Charles University in Prague
    University of Finance and Administration)

  • Eyup Kadioglu

    (Ghent University
    Capital Markets Board of Turkey)

Abstract

This study investigates the factors affecting the loan quality of banking sector in seventeen emerging and developing markets using quarterly panel dataset covering period of 2010–2019 and utilising feasible generalised least square methodology. Our empirical analysis suggests that inflation and lending rates negatively affect the banks’ loan quality measured by non-performing loans. On the contrary, economic growth and capital adequacy show a positive impact on banks’ loan quality. The inclusion of the ratio of net open position in foreign exchange to capital and its’ lagged values, as an additional factor, has marked out this research from other studies. Our results reveal that the ratio has a significant negative impact on loan quality in banking. This finding, as it was also seen in Asian crises of 1997, indicates that the higher the ratio net open position in foreign exchange to capital cause moral hazard problem leading to the higher non-performing loans in banking sectors.

Suggested Citation

  • Petr Jakubik & Eyup Kadioglu, 2022. "Factors affecting bank loan quality: a panel analysis of emerging markets," International Economics and Economic Policy, Springer, vol. 19(3), pages 437-458, July.
    • Handle: RePEc:kap:iecepo:v:19:y:2022:i:3:d:10.1007_s10368-021-00520-7
    DOI: 10.1007/s10368-021-00520-7
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