Non-Performing Loans: What Matters For Non-Financial Sector of Pakistan?
Abstract/Description
Corporate bankruptcies are common and have spillover effects on the overall economy. It deteriorates the stability of the financial sector as well by accumulating stock of non-performing loans (NPLs). The relationship between default rates and NPLs provide macro-financial linkage via credit risk channel. Many previous studies have examined the relationship of bank loan portfolios with macroeconomic, political, social, bank-specific factors at the country level or at the bank-level. Unlike previous studies, this paper examines the non-performing loans specific to the manufacturing sector only and examines the determinants of NPLs at the industry level. Besides, this is the first paper that introduces a proxy for legal bankruptcy framework in the context of Pakistan. We model non-performing loans by using 9 industries over the period of 2006-2018 using macroeconomic and industry specific determinants, insolvency score and dummy variable for Global Financial Crises of 2007-08. The results suggest that among macroeconomic indicators foreign direct investment, exchange rate, and GFC dummy are the primary drivers of NPLs in Pakistan. Interestingly, it reflects that the level of non-performing loans (or infection ratios) in Pakistan is contingent on global market conditions.
Track
Finance
Session Number/Theme
2B
Session Chair
Dr. Ashraf Khan ; Dr. Mohsin Sadaqat
Start Date/Time
27-5-2023 11:30 AM
End Date/Time
27-5-2023 1:30 PM
Location
MCS-4, AMAN-CED, First Floor
Recommended Citation
Iqbal, J., & Khan, U. E. (2023). Non-Performing Loans: What Matters For Non-Financial Sector of Pakistan?. 3rd IBA SBS International Conference 2024. Retrieved from https://ir.iba.edu.pk/sbsic/2023/program/28
COinS
Non-Performing Loans: What Matters For Non-Financial Sector of Pakistan?
MCS-4, AMAN-CED, First Floor
Corporate bankruptcies are common and have spillover effects on the overall economy. It deteriorates the stability of the financial sector as well by accumulating stock of non-performing loans (NPLs). The relationship between default rates and NPLs provide macro-financial linkage via credit risk channel. Many previous studies have examined the relationship of bank loan portfolios with macroeconomic, political, social, bank-specific factors at the country level or at the bank-level. Unlike previous studies, this paper examines the non-performing loans specific to the manufacturing sector only and examines the determinants of NPLs at the industry level. Besides, this is the first paper that introduces a proxy for legal bankruptcy framework in the context of Pakistan. We model non-performing loans by using 9 industries over the period of 2006-2018 using macroeconomic and industry specific determinants, insolvency score and dummy variable for Global Financial Crises of 2007-08. The results suggest that among macroeconomic indicators foreign direct investment, exchange rate, and GFC dummy are the primary drivers of NPLs in Pakistan. Interestingly, it reflects that the level of non-performing loans (or infection ratios) in Pakistan is contingent on global market conditions.
