TY - JOUR
T1 - The consequences of bank loan growth
T2 - evidence from Asia
AU - Vithessonthi, Chaiporn
N1 - Funding Information:
I thank Carl Chen (the Editor) and two anonymous referees for helpful comments. I am indebted to valuable comments from conference participants at the 2017 New Zealand Finance Colloquium.
Publisher Copyright:
© 2022 Elsevier Inc.
PY - 2023/1
Y1 - 2023/1
N2 - 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. Based on a final sample of publicly listed banks in 17 countries in Asia during the period 1995–2014, I find that in loan growth is not correlated with profitability but is positively associated with non-performing loans. In addition, banking sector development is positively associated with non-performing loans. The positive effect of loan growth on non-performing loans is stronger during financial crisis periods than tranquil times. These insights have the crucial consequences for central banks and banking supervisory authorities.
AB - 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. Based on a final sample of publicly listed banks in 17 countries in Asia during the period 1995–2014, I find that in loan growth is not correlated with profitability but is positively associated with non-performing loans. In addition, banking sector development is positively associated with non-performing loans. The positive effect of loan growth on non-performing loans is stronger during financial crisis periods than tranquil times. These insights have the crucial consequences for central banks and banking supervisory authorities.
KW - Asia
KW - Financial crisis
KW - Loan growth
KW - Managerial short-termism
KW - Non-performing loans
KW - Profitability
UR - http://www.scopus.com/inward/record.url?scp=85137709918&partnerID=8YFLogxK
U2 - 10.1016/j.iref.2022.08.025
DO - 10.1016/j.iref.2022.08.025
M3 - Article
AN - SCOPUS:85137709918
SN - 1059-0560
VL - 83
SP - 252
EP - 270
JO - International Review of Economics and Finance
JF - International Review of Economics and Finance
ER -