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Call for Papers: PIER Research Workshop 2025
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17 February 2016
20161455667200000
No. 019

Consequences of Bank Loan Growth: Evidence from Asia

Chaiporn Vithessonthi

Abstract

When an increase in bank loans does not immediately lead to a hike in non-performing loans, bank loan officers (and/or bank managers) whose compensation is based on the value/amount of loans granted have incentives to grant more loans to (potentially lower credit quality) borrowers, which should increase the banks' profits (and their personal compensation) in the short run. Using a sample of publicly listed banks in 18 countries in Asia during the period 1990–2014, I show that banks' loan growth rate has a negative short-run effect on their nonperforming loans and a positive short-run effect on their profitability. While the loan growth rate does not increase non-performing loans in the short run, there is some evidence to suggest that it increases non-performing loans in the long run. The results further indicate that banks' profitability is not affected by the level of loans but by the loan growth rate.

Chaiporn Vithessonthi
Chaiporn Vithessonthi
Sunway University Business School
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JEL: F4F5G1G2G3
Tags: asiafinancial crisisloan growthnon-performing loansprofitability
The views expressed in this workshop do not necessarily reflect the views of the Puey Ungphakorn Institute for Economic Research or the Bank of Thailand.
Chaiporn Vithessonthi
Chaiporn Vithessonthi
Sunway University Business School

Puey Ungphakorn Institute for Economic Research

273 Samsen Rd, Phra Nakhon, Bangkok 10200

Phone: 0-2283-6066

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