•  
  •  
 

CBN Journal of Applied Statistics (JAS)

Keywords

Banking System Stability, Non-performing Loan, Panel Generalized Methods of Moments, Panel Vector Autoregressive

Abstract

This study examines Non-Performing Loan (NPL) and its effects on the stability of Nigerian banks with national and international operational licenses from 2014:Q2 to 2017:Q2. A “restricted” dynamic GMM is employed to estimate the macroeconomic and bank specific drivers of NPL for each licensed category. Z-Score is constructed to proxy banking stability, and its response to shocks NPLs is examined in a panel vector autoregressive framework. The results reveal that drivers of NPLs vary across the two categories of banks, but, weighted average lending rate is a vital macroeconomic driver of NPLs for both. The results also confirm the moral hazard hypothesis and riskreturn tradeoff of efficient market theory. Furthermore, international banks withstand NPLs shocks in the long run, despite temporary flux in the short horizon, while the stability of national banks is susceptible to NPLs shocks in the long run. The study recommends that weighted average lending rate, anchored on monetary policy rate should be the focus of banks’ regulators when addressing issues of NPLs. Again, strategies for mitigating short run impacts of NPLs on the stability of international licensed banks should be incorporated in the off-site regulatory framework to ensure banking stability.

Author Bio

The author is a staff of the Department of Statistics, Central Bank of Nigeria, Abuja, Nigeria.

Publication Title

CBN Journal of Applied Statistics

Issue

2

Volume

9

Download
COinS
 
 

To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.