TAILIEUCHUNG - Determinants of Non Performing Loans: Case of US Banking Sector
Non Performing Loan Rate is the most important issue for banks to survive. There are lots of factors responsible for this ratio. Some of them belong to firm level issues and some are from macroeconomic measures. However this study is based on the blend. It considers the Real GDP per Capita, Inflation, and Total Loans as independent variables, and Non Performing Loan Ratio as dependent variable. Study uses the data of US banking sector from official web sources of US Federal Reserve System. | 125 The Romanian Economic Journal Non Performing Loan Rate is the most important issue for banks to survive. There are lots of factors responsible for this ratio. Some of them belong to firm level issues and some are from macroeconomic measures. However this study is based on the blend. It considers the Real GDP per Capita, Inflation, and Total Loans as independent variables, and Non Performing Loan Ratio as dependent variable. Study uses the data of US banking sector from official web sources of US Federal Reserve System. Years from 1985 to 2010 constitute the study period. Employing correlation and regression tests show that research model used is of good statistical health. All the selected independent variables have significant impact on the depended variable, however, values of coefficients are not much high. Banks should control and amend their credit advancement policy with respect to mentioned variables to have lower non-performing loan ratio. Keywords: Non Performing Loans, Determinants, NPLs, Banks, Write-offs, United States JEL Classifications: C23, G21Irum Saba, . Scholar, INCEIF, Malaysia, Email: irumsaba@ Rehana Kouser, . Lecturer, Department of Commerce Bahauddin Zakariya University, Multan-Pakistan, Email: rehanakousar@ 3 Muhammad Azeem, MBA (Finance) Scholar, Air University, Multan-Pakistan, Email: ranamuhammadazeem@ XV no. 44June Romanian Economic The link between the Non Performing Loans (NPLs henceforth) and loss of banks, is regarded a fact in literature of banking. Increase in NPLs rate is referred often as the failure of credit policy too. By viewing other side of the picture, it is also evident that financial crisis is also the effect of high NPLs rate in the banking sector. Financial crisis of late 2000s, which started from US and spread into whole world having trading relationships with US, is also labeled as cause of default in mortgages/loans. .
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