Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/203416
Authors: 
Lee, Junkyu
Rosenkranz, Peter
Year of Publication: 
2019
Series/Report no.: 
ADB Economics Working Paper Series 574
Abstract: 
The recent rise of nonperforming loans (NPLs) in some Asian economies calls for close analysis of the determinants, the potential macrofinancial feedback effects, and the implications for financial stability in the region. Using a dynamic panel model, we assess the determinants of the evolution of bankspecific NPLs in Asia and find that macroeconomic conditions and bank-specific factors - such as rapid credit growth and excessive bank lending - contribute to the buildup of NPLs. Further, a panel vector autoregression analysis of macrofinancial implications of NPLs in emerging Asia offers significant evidence for the feedback effects of NPLs on the real economy and financial variables. Impulse response functions demonstrate that a rising NPL ratio decreases gross domestic product growth and credit supply and increases unemployment rate. Our findings underline the importance of considering policy options to swiftly and effectively manage and respond to a buildup of NPLs. The national and regional mechanisms underlying NPL resolution are important for safeguarding financial stability in an increasingly interconnected global financial system.
Subjects: 
dynamic panel model
emerging Asia
financial stability
macrofinancial feedback effects
nonperforming loans
panel vector autoregression model
JEL: 
C32
C33
E44
G21
O16
Persistent Identifier of the first edition: 
Creative Commons License: 
https://creativecommons.org/licenses/by/3.0/igo/
Document Type: 
Working Paper
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