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Determinants of non-performing loans in Chinese banks

Muhammad Umar (AIR University School of Management (AUSOM), AIR University, Islamabad, Pakistan)
Gang Sun (School of Finance, Dongbei University of Finance and Economics, Dalian, China)

Journal of Asia Business Studies

ISSN: 1558-7894

Article publication date: 6 August 2018




The study aims to explore macroeconomic and banking industry-specific determinants of non-performing loans (NPLs) for Chinese banks, spanning from 2005 to 2014.


It uses three different models to explore the determinants. The first model has only macroeconomic variables as regressors; the second model has only banking industry-specific variables as independent variables; and the third model has macroeconomic and banking industry-specific variables as explanatory variables. Furthermore, system generalized method of moments estimation technique has been used to measure the coefficients of independent variables.


Gross domestic product (GDP) growth rate, effective interest rate, inflation rate, foreign exchange rate, type of bank, bank risk-taking behavior, ownership concentration, leverage and credit quality are significant determinants of NPLs in Chinese banks. Furthermore, the determinants of NPLs for listed and unlisted banks differ. Determinants of NPLs of listed banks include GDP, bank risk-taking behavior and credit quality. However, variation in NPLs of unlisted banks is explained by GDP, inflation rate, foreign exchange rate, bank risk-taking behavior, leverage and credit quality.


This study also finds that using only macroeconomic or banking industry-specific variables as regressors is not a right approach because it may lead to erroneous conclusions.



Umar, M. and Sun, G. (2018), "Determinants of non-performing loans in Chinese banks", Journal of Asia Business Studies, Vol. 12 No. 3, pp. 273-289.



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