Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/334084 
Year of Publication: 
2022
Citation: 
[Journal:] Asian Journal of Economics and Banking (AJEB) [ISSN:] 2633-7991 [Volume:] 6 [Issue:] 3 [Year:] 2022 [Pages:] 404-412
Publisher: 
Emerald, Leeds
Abstract: 
Purpose - This paper addresses the question 'Does the growth of nonperforming loan ratio (GNPL) have a temporal impact on private credit growth (PCG)?' for the Bangladesh banking industry during and after the global financial crisis of 2008. Design/methodology/approach - It employs the autoregressive distributed lag (ARDL) model to examine the temporal equilibrium relationship and causality between PCG and GNPL. Findings - The results of ARDL bound tests confirm the existence of a single cointegrating vector and temporal equilibrium relationship between variables of interest. According to the error correction mechanism (ECM), there is unidirectional causality from GNPL to PCG in the long run and short run. In the long run, higher GNPL curtails PCG since bankers use the nonperforming loan ratio as a signal and indicator of credit risk in their loan decision-making. In the short run, GNPL positively impacts PCG. It may be because banks go through a rigorous process before declaring a loan as nonperforming that takes time. At the same time, bankers' loan decisions may also be guided by the banks myopic concern of reputation in the short run. Practical implications - The paper recommends policy prescriptions for the bank risk management, regulatory bodies and the legal authorities. The lending policy of banks should consider the legacy of bad assets. The efficiency of the legal system can also aid in effectively implementing the regulatory guidelines. Originality/value - The paper inaugurates a bivariate cointegration analysis between PCG and GNPL in the literature. It has utilized quarterly aggregate data in the context of a developing economy like Bangladesh.
Subjects: 
Growth of nonperforming loan ratio
Growth of private credit
Long-run equilibrium relationship
Auto regressive distributed lag model
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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