Impact of Fluctuations in Macroeconomic Variables on Non-Performing Loans

• Main Authors: Reza Mohseni, Maryam fathian
• Format: Article
• Language: fas
• Published: Iran Banking Institute 2018-02-01
• Series: مطالعات مالی و بانکداری اسلامی
• Subjects: Non-Performing Loans; Fluctuations of Macroeconomic Variables; EGARCH Model; VAR Model
• Online Access: http://jifb.ibi.ac.ir/article_58633_e1ceb8e74177e92679a81a021a0e164f.pdf

Non-performing loans are one of the most important data used to determine the efficiency of banks as well as the health of banking sector and the effects of financial crisis. In recent years, the increase in non-performing loans needs for more rigorous researches. On the other hand, economic activities have been facing considerable fluctuations in major macroeconomic indicators. This study, therefore, aims at investigating the impact of fluctuations in macroeconomic variables on non-performing loans over the years 1978-2015 (during the Islamic revolution period) in Iranian banks. In order to capture the aforementioned relationship, an EGARCH model has been employed. To meet the econometric validity requirements, vector auto regression (VAR) has been used to fit the proper model.   It is shown that the macroeconomic indicators have significant impacts on NPLs, more precisely the ratio of non-performing to total loans. According of the results, most of the long term changes in NPLs are explained by their past values and other important variables including oil revenue, budget deficit, inflation, GDP and unemployment rate.