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Non-Performing Loans, Banking System and Macroeconomy

Author

Listed:
  • Morakinyo Akinola

    (University of KwaZulu-Natal, South Africa)

  • Muller Colette

    (University of KwaZulu-Natal, South Africa)

  • Sibanda Mabutho

    (University of KwaZulu-Natal, South Africa)

Abstract

The study builds on previous studies of the consequences of non-performing loans on an economy. Using a seven-by-seven matrix in the impulse response function (IRF) of the structural autoregressive model, we find a long-run impact of an impulse to non-performing loans on the banking system and the macroeconomy in Nigeria. Conversely, non-performing loans also respond to the innovation of all macro-banking variables aside from the exchange rate and the growth rate to GDP. Also, the level of non-performing loans grows in influence in relation to the changes to the exchange rate using the variance decomposition tool of Structural VAR. Hence, a prominent role is assigned to the level of NPLs in linking the friction in the credit market to the susceptibility of both the banking system and the macroeconomy. This study passes the serial correlation tests and the three tests of normality.

Suggested Citation

  • Morakinyo Akinola & Muller Colette & Sibanda Mabutho, 2018. "Non-Performing Loans, Banking System and Macroeconomy," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 63(2), pages 67-86, August.
    • Handle: RePEc:vrs:subboe:v:63:y:2018:i:2:p:67-86:n:4
    DOI: 10.2478/subboec-2018-0009
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    More about this item

    Keywords

    SVAR; non-performing loans; impulse response function; variance decomposition; macro-banking;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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