ABSTRACT
This study examined the
determinants of non-performing loans in emerging economies with evidence from
the Nigerian banking industry. The study adopted the ex-post facto design. Time
series data for the period 1993-2014 were collated from the Central Bank of
Nigeria Statistical Bulletin and Financial Statement of banks for the period.
The Ordinary least square regression was used to test the five hypotheses
stated. Non-performing loans measured by the natural logarithm of aggregate
non-performing loans of banks represented the dependent variable while gross
domestic product, inflation rate, total loans and advances, total assets and
bank’s lending rate were adopted as the independent variables for the five
hypotheses of the study. Macroeconomic variables such as exchange rate, and
interest rate were also included as control variables. Descriptive statistics
on the dependent, independent and control variables were also computed and
graphed to complement the regression results. The result emanating from this study
revealed that gross domestic product had negative effect on non-performing
loans; Inflation rate had positive effect on non-performing loans but was
insignificant; total loans and advances had positive effect on non-performing
loans and was statistically significant at the 0.05 level; total Assets exerted
negative effect on non-performing loans and was statistically significant at
the 0.05 level and Bank lending rate had positive and insignificant effect on
non-performing loans. The study therefore concludes that bank-specific factors
drive changes in or determine Non-performing loans more than macroeconomic
factors in Nigeria. This should affect the direction of economic policies in
the country. It is recommended, among others, that macroeconomic policy should
be directed at sustaining economic growth as it curbs non-performing loans in
the banking industry.
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Emerging economies as defined by
Center for Knowledge Societies (2008), are those regions of the World that are
experiencing rapid informationalization under conditions of limited or partial
industrialization. The emerging economies often referred to as “Emerging
Markets” (Bloomberg, 2006) are Countries that have the characteristics of
developed markets but are not yet developed markets. These include countries
that may become developed markets in the future or were in the past. It may be
a nation with social or business activity in the process of rapid growth and
industrialization. Kveint (2009:3) explains that “emerging market country is a
society transitioning from a dictatorship to a free-market-oriented-economy,
with increasing economic freedom, gradual integration with the Global
Marketplace and with other members of the Global Emerging Market (GEM), an
expanding middle class, improving standards of living, social stability and
tolerance, as well as increase in cooperation with multilateral institutions”.
According to Robert (2000:1), the
emerging economies are low-income, rapid-growth countries using economic
liberalization as their primary engine of growth. He explained that the major
government policy tool is the capital account liberalization, which is a
parameter used in measuring the degree of openness of an economy, signaling the
rate of inflow and outflow of capital from one country to another without
undermining its territorial integrity and independence. The extremes of the
continuum are strict controls, which come in some variety, and liberalized
markets, where economic agents freely interact under commonly applicable rules
to clear the markets.
In the early 1980s, the term,
newly industrialized countries, was applied to a few fast-growing and
liberalizing Asian and Latin American countries. Because of the wide spread
liberalization and adoption of market-based policies by most developing
countries, the term “newly industrializing countries” has now been replaced by
the broader term emerging market economies (Adedipe, 2006). Thus, an emerging economy
has further been explained as a country that satisfies two criteria: a rapid
pace of economic development, and government policies favouring economic
liberalization and the adoption of a free-market system (Anold & Quelch,
1998).
The
International Finance Corporation (IFC, 1999) identified 51 rapid-growth
economies in Asia, Latin America, Africa and the Middle East in addition to the
13 transitional economies following the collapse of Communism in Eastern and
Central Europe in 1989. Over time, the Emerging Economies countries became
classified as regional economic blocks which are identified as follows:
Ø The BRICS Countries (Brazil, Russia, India, China,
and South Africa).
Ø The CIVETS Countries (Columbia, Indonesia, Vietnam,
Egypt, Turkey and South Africa).
Ø MINT (Mexico, Indonesia, Nigeria and Turkey).
Ø Others include (Bangladesh, Iran, Pakistan,
Philippines, Poland, and South Korea, etc).
Miller (1998) summarizes the most
common characteristics of emerging markets using the following parameters, and
comparing emerging markets with developed economies in the table below as
follows:
1) Physical characteristics- in terms of an inadequate
commercial infrastructure as well as inadequacy of all other aspects of
physical infrastructure (communication, transport, power generation);
2) Sociopolitical characteristics- which include,
political instability, inadequate legal framework, weak social discipline, and
reduced technological levels, besides (unique) cultural characteristics; and
3) Economic characteristics- in terms of limited
personal income centrally controlled currencies with an influential role of
government in economic life, in managing the process of transition to market
economy.
Comparing emerging markets (and
emerging economies) with developing countries, it is necessary to understand
why emerging economies are so important for world economic growth. Differences
between emerging economies and developed economies are presented in Table 1
below.....
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