The Study Of Relationship Between The Bank-Specific Determinants And Non-Performing Loans

Non-performing loans (NPLs) have always been a noticeable field in bank. Bank loans is one of the main assets, the NPLs which reduced the quality of loans has a significant negative impact on the normal operation of the banks. After our unremitting efforts of banks and regulatory authorities, the NPLs achieve a ’double down’in the last ten years. But the balance of NPLs is still huge. And starting from the end of 2012, China’s non-performing loans of the ’double down’ era is over. Therefore, to control the bank’s non-performing loans has important theoretical and practical significance. To control non-performing loans, the primary solution is to understand and analyze the reasons for the formation of bad loans.In this paper, we combine theoretical analysis method and empirical analysis method to study the causes of non-performing loans. First, the concept of non-performing loans was defined and classified. Secondly, reference foreign literature to analyze the determinants of two types of non-performing loans. Macroeconomic factors including real GDP growth, unemployment rates, lending rates. Bank-specific determinants have eight hypothesis: ’Bad management’, ’Skimping’,’Moral hazard’,’Diversification’,’Too big to fail’,’Bad management II’, ’Procyclical credit policy’,’Tight control’. Then, the semi-annual data of the empirical part is taken from our country listed banks’annual reports, income statement and balance sheet from the fourth quarter of 2007 to the fourth quarter of 2012. Divided the non-performing loans into non-performing corporate loans and personal types of non-performing loans use Generalized Method of Moments (GMM) method to test the aforementioned factors, macroeconomic factors and bank characteristics.Empirical results show that the macroeconomic determinants of non-performing loans in China are mainly GDP growth and unemployment. Two types of non-performing loans showed the consistency of the relationship between these two factors. The bank-specific determinants of non-performing loans are’Skimping’,’Bad management II’and’Moral hazard’. In addition, part of foreign scholars’hypothesis does not apply to China’s listed banks.’Moral hazard’hypothesis depend on the types of loans. Combine empirical and theoretical, from the management and policy, the bank’s behavior can be used as a leading indicator of future problem loans. Regulatory authorities should pay attention on bank behavior.