Banking System Stability, Non-performing Loan, Panel Generalized Methods of Moments, Panel Vector Autoregressive
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.
CBN Journal of Applied Statistics
Atoi, Ngozi V.
"Non-performing Loan and its Eﬀects on Banking Stability: evidence from National and International Licensed Banks in Niger,"
CBN Journal of Applied Statistics (JAS): Vol. 9
, Article 3.
Available at: https://dc.cbn.gov.ng/jas/vol9/iss2/3