Non-Performing Loans and Financial Development : New Evidence

The study investigates the influence of financial development on non-performing loans using a global sample. The findings indicate that two financial development proxies, foreign bank presence and financial intermediation, are positively associated with non-performing loans. Among the determinants of non-performing loans, bank efficiency, loan loss coverage ratio, competition and banking system stability are inversely associated with NPLs while NPLs are positively associated with banking crises and bank concentration. In the regional analysis, NPLs are negatively associated with regulatory capital and bank liquidity, implying that banking sectors with greater regulatory capital and liquidity experience fewer NPLs. National bank regulators/supervisor should not only take into account the role that financial development structures play in influencing aggregate non-performing loans but should also ensure that thorough supervision of the lending practices of banks is in place as well as the active monitoring of the financial intermediation process in the country