Explanatory Power of Bank Specific Variables as Determinants of Non-Performing Loans: Evidence form Pakistan Banking Sector

Abstract

2 Abstract: It is widely accepted that the growth in Non-performing loans is associated with the inefficiency, failures of the banks and financial crisis in the developed and developing countries. In fact, existing studies have provided evidence that the rapid growth in NPLs leads to the financial crisis. Therefore whenever financial vulnerability is examined, main emphasis is placed on the levels of NPLs. The NPLs in Pakistan are increasing with an alarming rate each year; therefore the main aim of the current study is to investigate the bank specific determinants of NPLs. The current study used 6 years panel data (2006-2011) of 30 banks to test the validity of 10 banks specific hypotheses. The commercial banks can use the findings of current study to improve the current management performance, control the current level of lending as compared to expected NPLs and extensive lending during boom to reduce the level of NPLs.