How do Macroeconomic Indicators Shape Nonperforming Loans?

Abstract

This study examines the influence of macroeconomic indicators on nonperforming bank loans. This research focuses on the period from 2010:1Q to 2019:4Q to capture significant trends and fluctuations in the economy. Data for receivables to be liquidated as a proxy for nonperforming loans, the consumer price index as a proxy for inflation, total private consumption expenditures as a proxy for economic activity, gross domestic product and total (private) fixed capital expenditures as proxies for economic growth are analyzed using the ARDL bound test, FMOLS, DOLS and VECM Granger methodologies. This study addresses several key questions. First, it examines how the receivables to be liquidated relate to changes in total private consumption expenditures (LNPCE). The findings indicate that higher LNPCE decreases the ability of receivables to be liquidated in both the long run and short run. Second, it explores the impact of gross domestic product (GDP) fluctuations on the amount of receivables to be liquidated, revealing that a higher GDP increases the amount of receivables to be liquidated in both the long and short run. Last, the study assesses the extent to which changes in the consumer price index (CPI) influence the receivables to be liquidated, finding that a higher CPI increases the receivables to be liquidated in the long run.

Keywords

• non-performing loans
• economic development
• inflation
• ardl bound test