MACROECONOMIC INDICATORS AS DETERMINANTS OF BANKING INDUSTRY’S NON-PERFORMING LOANS

Abstract

Purpose The preliminary purpose of this research work and study is to recognize and assess the determinants of Non-Performing Loans in the Financial (Banking) industry of Pakistan and establish a correlation between these variables. Methodology & Design To work for this determination, historical data on Macro-economic variables have been collated and used to determine the relationship between these variables and Non-Performing loans statistically. Regression and Correlation based techniques have been used to establish the dependency Findings This in depth and empirical study of the macro - economic variables in explaining the variation in non - performing loans, revealed that collectively Inflation (CPI Index), GDP growth (LSM Index), Exchange Rate (ER), Discount Rate (DR), Imports, Exports, Private Sector Credit, PSX performance (KSE 100 Index), Oil prices, Money Supply (M2) and Infection Rate (Textile Sector), statistically are able to significantly explain the variation in the non - performing loans. Upon conducting detailed multi-variate regression analysis, it was deduced that regardless of underlying correlation of each macro - economic variable vis - a - vis non - performing loans, except for GDP Growth, PSX performance and Oil prices, all other variables are significant predictor of non - performing loans