Are non-performing loans sensitive to macroeconomic determinants? an empirical evidence from banking sector of SAARC countries

Abstract

The study empirically investigates selected macroeconomic determinants of nonperforming loans (NPLs) for a panel of 8 SAARC countries (Afghanistan, Bangladesh, Bhutan, India, Nepal, Maldives, Pakistan, and Sri-Lanka), using annual data for the period 2008-2019. To examine the association, this study, primarily, conducted OLS model, fixed-effect estimates, and random-effect estimates and, eventually, applied robust fixed effect estimates to resolve the problem of heteroscedasticity. The empirical findings confirmed the previous findings, indicating a significant positive association with the government budget balance and a significant inverse relationship with GDP, sovereign debt, inflation rate, and money supply. The findings are useful for formulating macro-prudential along with fiscal policies to avoid the subsequent NPLs shock in SAARC countries.