Macroeconomic changes and financial development on non-performing loans are developing, developed and less developed

Subject Areas : Miscellaneous Categories

Amirreza Souri ¹ , Fatima Panahi ²

1 - Assistant Professor of Economics, Department of Macroeconomics and Future Studies, Institute for trade studies and research, Tehran, Iran (corresponding author), Email: [e-mail]
2 - Economics Researcher, Department of Macroeconomics and Future Studies, Institute for trade studies and research, Tehran, Iran. Email: [e-mail]

Received: 2025-02-13 Accepted : 2025-05-19 Published : 2025-07-19

Keywords: Macroeconomic Variables, Financial Development, Non-performing Loans, Risk,

Abstract :

This study examines the impact of macroeconomic factors and financial development on non-performing loans (NPLs) across developed, developing, and less developed countries. Utilizing panel data from 2004 to 2019 and employing the Generalized Method of Moments (GMM) approach, the analysis explores the short-term determinants of NPLs, while long-term dynamics are assessed through the Granger causality test. The empirical framework is based on a modified version of the model proposed by Goyal et al. (2023). The findings indicate that NPLs are negatively associated with economic growth (GDP) and inflation (INF), and positively associated with unemployment (UNE). Furthermore, banking sector variables such as bank capital (BCE), return on assets (ROA), non-interest income to total income (NIT), bank credit ratio (CRB), financial capitalization ratio (AFI), and the share of foreign bank assets (AFB) exhibit a negative relationship with NPLs. The study also finds that, in the long run, higher levels of economic growth are associated with a decline in NPLs, and that financial development—along with enhanced regulatory and supervisory mechanisms—contributes to a reduction in loan delinquency.

 

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