The Consequences of Bank Loan Growth : Evidence from Asia

How much of non-performing loans can be explained by loan growth? If an increase in loan growth leads to higher profitability but does not necessarily cause non-performing loans to increase in the short run, banks with (managerial) short-termism will be ex ante incentivized to grant more loans to increase short-run profitability. Using a sample of publicly listed banks in 18 countries in Asia during the period 1990–2014, I show that in the short run, loan growth has a positive effect on profitability and a negative effect on non-performing loans. Overall, I provide comprehensive empirical evidence for the relationships between loan growth, profitability, and non-performing loans for publicly listed banks in Asia