Determinants of Non-Performing Loans: Evidence From Conventional Banks in Malaysia

Abstract

Purpose of the study: This paper attempts to determine the determinants of non-performing loans in commercial banks in Malaysia. This study attempts to explore the specific bank factors as well as macroeconomics factors that are contributing to the non-performing loans. Methodology: This paper analyzes the data using eight local commercial banks in Malaysia. The data collected from the annual report and Data Streams database for the year 2009 to 2018. A panel data approach has been used to analyze the data. All the determinants regressed against non-performing loans by using STATA 14 as a tool. Main Findings: The results of this study present that capitalization had a significant negative relationship with nonperforming loans, while the real effective exchange rate had a significant positive correlation with non-performing loans. Applications of this study: This study highlights the crucial factors of the non-performing loans that can be used by the bank or financial institutions. Novelty/Originality of this study: This study includes one new variable for the macroeconomics factors, which is the real effective exchange rate, and the result shows it is significant towards non-performing loans. Therefore, this study enhances the existing model with the new variable that can be used to find what is affecting the non-performing loans.