TY - JOUR
T1 - Regulations, Governance, and Resolution of Non-Performing Loan
T2 - Evidence from an Emerging Economy
AU - Amin, Abu S.
AU - Imam, Mahmood Osman
AU - Malik, Mahfuja
N1 - Funding Information:
We would like to thank Lucy Chernykh, Lucjan Orlowski, and Evzen Kocenda, conference participants at the Southern Finance Association Meeting 2013, the Eastern Finance Association Meeting 2014, and the seminar at the Sacred Heart University. We are also grateful for the comments by two anonymous referees
Publisher Copyright:
©, Copyright © Taylor & Francis Group, LLC.
PY - 2019/8/9
Y1 - 2019/8/9
N2 - How do banks resolve a severe bad loan problem in a capital-constrained, low-income economy when a government bailout is not an option? We address this question by examining new evidence from a sharp decline in bad loan ratios in a panel of conventional commercial banks in Bangladesh. On the aggregate level, the bad loan ratio in this market has dropped from 41% in 1999 to only 10% in 2012. We find that at a micro level, this dramatic improvement is associated with bank management quality and internal governance that were substantially enhanced during a decade of large-scale regulatory reforms. The bank-level findings persist even after controlling for market monitoring, bank- and industry-level factors, and macroeconomic variables. Both economic growth and financial development paved the way for banks operating in this macroeconomic environment to reduce non-performing loans over time.
AB - How do banks resolve a severe bad loan problem in a capital-constrained, low-income economy when a government bailout is not an option? We address this question by examining new evidence from a sharp decline in bad loan ratios in a panel of conventional commercial banks in Bangladesh. On the aggregate level, the bad loan ratio in this market has dropped from 41% in 1999 to only 10% in 2012. We find that at a micro level, this dramatic improvement is associated with bank management quality and internal governance that were substantially enhanced during a decade of large-scale regulatory reforms. The bank-level findings persist even after controlling for market monitoring, bank- and industry-level factors, and macroeconomic variables. Both economic growth and financial development paved the way for banks operating in this macroeconomic environment to reduce non-performing loans over time.
KW - Bangladesh
KW - banking sector reforms
KW - market discipline
KW - non-performing loans
KW - regulatory discipline
UR - http://www.scopus.com/inward/record.url?scp=85060432164&partnerID=8YFLogxK
U2 - 10.1080/1540496X.2018.1523788
DO - 10.1080/1540496X.2018.1523788
M3 - Article
AN - SCOPUS:85060432164
SN - 1540-496X
VL - 55
SP - 2275
EP - 2297
JO - Emerging Markets Finance and Trade
JF - Emerging Markets Finance and Trade
IS - 10
ER -
