Impact of High Non-Performing Loan Ratios on Bank Lending Trends and Profitability

International Journal of Financial Studies, 2020, 8, 12

10 Pages Posted: 12 Aug 2020 Last revised: 18 Sep 2020

Date Written: August 10, 2020

Abstract

The goal of this paper is to explore the relationship between the specific non-performing loan ratio (NPL ratio) and the corresponding impact on the bank’s profitability and lending behavior. It also seeks to investigate the macroeconomic impacts of economies with excessively high NPL ratios as well as the efficacy and impact of alleviation measures used by banks and governments around the world to help facilitate a decrease in high NPL ratios. The possible implications and effects of the COVID-19 pandemic on NPL ratios is also addressed in this paper. It is found that when excessively high NPL ratios go unaddressed, the economy tends to suffer. On the other hand, this study shows that when measures are taken to reduce or eliminate the high NPL ratios, economic performance improves, and the reduction has a clear positive impact on the economy.

Keywords: NPL ratio, non-performing loans, economic recovery

JEL Classification: G10, G21, G28

Suggested Citation

Jing, Eric, Impact of High Non-Performing Loan Ratios on Bank Lending Trends and Profitability (August 10, 2020). International Journal of Financial Studies, 2020, 8, 12, Available at SSRN: https://ssrn.com/abstract=3670002

Eric Jing (Contact Author)

Livingston High School ( email )

30 Robert Harp Dr.
Livingston, NJ 07039
United States

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