Nonperforming Loans in BRICS Nations: Determinants and Macroeconomic Impact

Abstract

The issue of Nonperforming loan is considered as a serious threat towards the banking soundness of a country. Nonperforming loans are those loans which cease to generate principle and interest and create a negative impact on the performance of banks. There are host of factors which effect nonperforming loans which include both banking and macroeconomic variables. This study tries to study the impact of macroeconomic determinants on the Nonperforming loans of BRICS countries covering the period from 2000-2016. BRICS bloc is considered for study as various previous studies shows that trading blocs also get affected by inter countries nonperforming loans issues. This study uses dynamic panel data approach for analysis using Fully Modified Ordinary least square model along with Co integration analysis and for robustness checks this model incorporates fixed and random ordinary least square method. The outcome of this paper shows that unemployment has a positive relation with nonperforming loans whereas growth and financial soundness of a country has a negative relation with nonperforming loans. Savings by household also has an inverse relation with nonperforming loans like inflation rate which shows a negative relation with default loans.

Keywords: Nonperforming Assets, Macroeconomic variables, FMOLS, BRICS, Bank

JEL Classification: E32, E44, G21, F62