DETERMINANTS OF NON-PERFORMING LOANS IN THE MALAWI BANKING SECTOR
Date
2020-09-23
Authors
PHIRI, SANGWANI M.
Journal Title
Journal ISSN
Volume Title
Publisher
UNIVERSITY OF MALAWI
Abstract
Default risk as evidenced by the level of Non-Performing loans (NPLs) in Malawi
commercial banks has been increasing. NPLs which describe the Asset Quality of the
banks is a measure of bank performance therefore it has an overall impact on the
financial stability of the banks. NPLs result into funds being locked up in the
unproductive sectors of the economy hence impeding economic growth and impairing
economic efficiency. This study’s main objective was to determine the causes of NPLs
in the commercial banks of Malawi. The study used panel data from seven banks from
the year 2005 to 2014 in Malawi to analyze the bank-specific, industry-specific and
macroeconomic determinants of NPLs using a Generalized Methods of Moments
(GMM)/Dynamic Panel model. The model employed the Arellano-Bond (1991) onestep estimation technique which provides unbiased estimators when compared to a
pooled regression model. The results obtained found that all bank-specific variables
(bank size, loans to total assets ratio, ownership and growth rate of loans) were
statistically significant. The variable bank and loans to assets ratio had positive
significance. While ownership and growth rate of loans had negative impact. The
industry-specific variable lending rate was found to have a negative impact. Among the
only macro-economic variables (inflation, real exchange rate and growth rate of GDP),
only the growth rate of GDP was found to be statistically significant. While inflation
was found to be statistically significant only after taking its one period lag.
Description
Monetary Economics