Determinants of Non Performing Loans: Case of US Banking Sector

Saba, Irum
Kouser, Rehana
Azeem, Muhammad
Publication date: 
JEL codes: 
C23 - Models with Panel Data; Longitudinal Data; Spatial Time Series, G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages.
Non Performing Loan Rate is the most important issue for banks to survive.There are lots of factors responsible for this ratio. Some of them belong to firm level issues and some are from macroeconomic measures. However this study is based on the blend. It considers the Real GDP per Capita, Inflation, and Total Loans as independent variables, and Non Performing Loan Ratio as dependent variable.Study uses the data of US banking sector from official web sources of US Federal Reserve System. Years from 1985 to 2010 constitute the study period. Employing correlation and regression tests show that research model used is of good statistical health. All the selected independent variables have significant impact on the depended variable, however, values of coefficients are not much high. Banks should control and amend their credit advancement policy with respect to mentioned variables to have lower non-performing loan ratio.