Determinants of Non-Performing Loan in South Asia: The Role of Financial Crisis

Abstract

The purpose of the study is to recognize the factors influencing non-performing loan in banking system of South Asian region for the period of 1999-2015. Generalized method of moment (GMM) is used to grasp the hetero nature of data at variant countries and apply impulse response function for robustness of results. The study results reveals that NPL is influenced by both macroeconomic indicators and bank-specific variables (although the bank-specific variables found to be low explanatory power due to their time variant indulgence, which marginally surge the within explanatory impact of every group while diminishes the between influence in the fixed effect estimations). The analysis indicates that NPL response to macroeconomic determinants is more significant in the post crisis period than pre crisis period. The scenario is suggesting that the level of NPL adversely affecting the economic recovery system in South Asian region.