MACROECONOMIC DETERMINANTS OF NON-PERFORMING LOANS (NPL): EVIDENCE FROM PAKISTAN

Abstract

This analytical study investigates the determinants of non-performing loan in Pakistan. Secondary data is used in this study. The data is collected through World Bank Databank, international financial statistics and various issues of economic survey of Pakistan. The issue of Non-Performing Loan is one of the clusters of financial problems in Pakistan. No one can deny the importance of financial sector in any economy. In this study we find the macroeconomic factor that surge the NPL. We also suggest some strategies to cutback the non-performing loans. Current study uses the time series data of Pakistan, ranging from 1990 to 2013. Ordinary least square (OLS) method is used to investigate the problem. The dependent variable is non-performing loan and independent variables are exchange rate, interest rate, GDP, share prices, energy crisis, exchange rate and energy crisis. GDP has significant relationship with NPL and interest rate, share prices have insignificant relationships with NPL. A positive link has established between non-performing loans and various independent variables like energy crisis, exchange rate, interest rate, share prices. But on the other hand a negative relationship has been found between dependent variable and GDP.