Login



Other Articles by Authors

Abdulwahab Animoku



Authors and WSEAS

Abdulwahab Animoku


WSEAS Transactions on Business and Economics


Print ISSN: 1109-9526
E-ISSN: 2224-2899

Volume 15, 2018

Notice: As of 2014 and for the forthcoming years, the publication frequency/periodicity of WSEAS Journals is adapted to the 'continuously updated' model. What this means is that instead of being separated into issues, new papers will be added on a continuous basis, allowing a more regular flow and shorter publication times. The papers will appear in reverse order, therefore the most recent one will be on top.


Volume 15, 2018


Frequentist and Bayesian Methods of Estimating Parameters in a Non-Performing Loan Model

AUTHORS: Abdulwahab Animoku

Download as PDF

ABSTRACT: In the literature, several macroeconomic economic factors such as GDP, inflation rate, unemployment, and exchange rate have been identified to influence the level of non-performing loan ratio (NPL) in the banking sector. Other macroeconomic variables such as industry production index, stock exchange index, and oil price are also well documented to have strong explanatory power on NPLs. In this study, we examine the effects of some macroeconomic variables (exchange rates (T L/$ and T L/e ), industrial production index (IPI), stock exchange index (BIST100), and oil price) on NPL ratio. Further more, we focus on estimating the parameters related to the above variables in a non-performing loan ratio model via Frequentist approach and Bayesian analysis. In the Bayesian method, we provide uninformative and informative priors and a likelihood function that determines the posterior distributions of the parameters. Using Markov Chain Monte Carlo (MCMC) algorithm, we sample the estimates of the parameters from their posterior distributions. The results of the analysis show that the above mentioned macroeconomic variables examined in this study have significant effects on non-performing loan ratio.

KEYWORDS: Non-performing loan ratio, Bayesian analysis, Frequentist approach, FX, IPI, BIST100

REFERENCES:

[1] F. Ahmad and T. Bashir. Explanatory power of macroeconomic variables as determinants of non-performing loans: Evidence form pakistan. World Applied Sciences Journal, 22(2):243–255, 2013.

[2] R. Babihuga. Macroeconomic and financial soundness indicators: an empirical investigation. International Monetary Fund, pages 7– 115, 2007.

[3] D. Buncic and M. Melecky. Macroprudential stress testing of credit risk – a practical approach for policy makers. World Bank Policy Research Working Paper, 5938, 2012.

[4] N. Collins and K. Wanjau. The effects of interest rate spread on the level of non-performing assets: A case of commercial banks in kenya. International Journal of Business and Public Management (ISSN: 2223-6244) Vol, 1(1):58– 65, 2011.

[5] R. De Bock and M. Demyantes. Bank asset quality in emerging markets: Determinants and spillovers. IMF. Working Paper, 12(71), 2012.

[6] A. Dimitrios, L. Helen, and T. Mike. Determinants of non-performing loans: Evidence from euro-area countries. Finance Research Letters, 2016.

[7] A. Erdogdu. Non-performing loans in turk- ˘ ish banking sector and balance sheets effects. Journal of Modern Accounting and Auditing, 11(12):677–686, 2015.

[8] A. Erdoglu. Non-performing loans in turk- ˘ ish banking sector and balance sheets effects. Journal of Modern Accounting and Auditing, 15(12):677–686, 2015.

[9] R. Espinoza and A. Prasad. Nonperforming loans in the gcc banking systems and their macroeconomic effects. IMF Working Paper, 10(224), 2010.

[10] H. Fofack. Nonperforming loans in sub-saharan africa: causal analysis and macroeconomic implications. World Bank Policy Research Working Paper, 3769, 2005.

[11] S. Haneef, T. Riaz, M. Ramzan, M. A. Rana, M. I. Hafiz, and Y. Karim. Impact of risk management on non-performing loans and profitability of banking sector of pakistan. International Journal of Business and Social Science, 3(7), 2012.

[12] M. Islamoglu. The effect of macroeconomic ˘ variables on non-performing loan ratio of publicly traded banks in Turkey. Transactions on Business and Economics, 12:10–20, 2015.

[13] P. Jakub´ık and P. Reininger. Determinants of nonperforming loans in central, eastern and southeastern europe. Focus on European Economic Integration, 3:48–66, 2013.

[14] H. Kalirai and M. Scheicher. Macroeconomic stress testing: Preliminary evidence for austria. Austrian National Bank Financial Stability Report, 3, May 2002.

[15] I. Karahanoglu and H. Ercan. The effect ˘ of macroeconomic variables on non-performing loans in turkish banking sector. Journal of International Social Research, 8(39), 2015.

[16] N. Klein. Non-performing loans in cesee: Determinants and impact on macroeconomic performance. International Monetary Fund, 13/72, 2013.

[17] D. P. Louzis, A. T. Vouldis, and V. L. Metaxas. Macroeconomic and bank-specific determinants of non-performing loans in greece: A comparative study of mortgage, business and consumer loan portfolios. Journal of Banking & Finance, 36(4):1012–1027, 2012.

[18] A. Mancka. The impact of national currency instability and the world financial crisis in the credit risk. the case of albania. Journal of Knowledge Management, Economics and Information Technology, 8, 2002.

[19] J. Marcucci and M. Quagliariello. Is bank portfolio riskiness procyclical?: Evidence from italy using a vector autoregression. Journal of International Financial Markets, Institutions and Money, 18(1):46–63, 2008.

[20] H. Nanteza. Economic determinants of nonperforming loans (npls) in ugandan commercial banks. A contemporary business journal, 5(2):137–153, 2015.

[21] M. Nkusu. Nonperforming loans and macrofi- nancial vulnerabilities in advanced economies. IMF Working Papers, pages 1–27, 2011.

[22] M. Quagliariello. Banks’ riskiness over the business cycle: a panel analysis on italian intermediaries. Applied Financial Economics, 17(2):119– 138, 2007.

[23] C. S. Ralph. Uncertainty Quantification: Theory, Implementation and Applications. Society for Industrial and Applied M, 2010.

[24] B. K. Rono, L. W. Wachilonga, and R. S. Simiyu. Assessment of the relationship between interest rate spread and performance of commercial banks listed in nairobi securities exchange. International Journal of Financial Economics, 3(2):98–112, 2014.

[25] V. Salas and J. Saurina. Credit risk in two institutional regimes: Spanish commercial and savings banks. Journal of Financial Services Research, 22(3):203–224, 2002.

[26] J. Sinkey Jr and M. B. Greenawalt. Loan-loss experience and risk-taking behavior at large commercial banks. Journal of Financial Services Research, 5(1):43–59, 1991.

[27] M. Vatansever and A. Hepsen. Determining impacts on non-performing loan ratio in Turkey. Journal of Finance and Investment Analysis, 2(4):119–129, 2013.

[28] F. Yıldırım. Factors that trigger financial crisis: The case of Turkey. Social and Behavioral Sciences, 109:896–901, 2014.

[29] J. Zeman and P. Jurca. Macro stress testing of the slovak banking sector. National Bank of Slovac Working Paper, 1:3–26, 2008.

WSEAS Transactions on Business and Economics, ISSN / E-ISSN: 1109-9526 / 2224-2899, Volume 15, 2018, Art. #19, pp. 187-196


Copyright © 2018 Author(s) retain the copyright of this article. This article is published under the terms of the Creative Commons Attribution License 4.0