Macroeconomic Determinants of Non-Performing Loans (NPL): Evidence From Pakistan

Abstract

This analytical study investigates the determinants of non-performing loans in Pakistan. Secondary data is used in this study. The data is collected through World Bank Databank, International Financial Statistics, and various issues of the Economic Survey of Pakistan. The issue of non-performing loans is one of the clusters of financial problems in Pakistan. No one can deny the importance of the financial sector in any economy. In this study we find the macroeconomic factor that surges the NPL. We also suggest some strategies to cut back the non-performing loans. The current study uses the time series data of Pakistan, ranging from 1990 to 2013. The ordinary least squares (OLS) method is used to investigate the problem. The dependent variable is non-performing loans, and the independent variables are exchange rate, interest rate, GDP, share prices, energy crisis, exchange rate, and energy crisis. GDP has a significant relationship with NPL and interest rates; share prices have insignificant relationships with NPL. A positive link has been established between non-performing loans and various independent variables like energy crisis, exchange rate, interest rate, and share prices. But on the other hand, a negative relationship has been found between the dependent variable and GDP.