An econometric analysis regarding the path of non performing loans-a panel data analysis from Mauritian banks and implications for the banking industry
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25 November 2022
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An econometric analysis regarding the path of non performing loans-a panel data analysis from Mauritian banks and implications for the banking industry
The present study pertains to unravelling the internal (bank specific) and external
(macroeconomic) determinants of nonperforming loans in Mauritius using annual report data
from a panel of 10 existing banks and macroeconomic data for the period 2000 to 2012. The
model used in the present instance comprises of a vector of bank specific and macro economic
variables which include the inflation rate, lending interest rates, growth of the construction
sector and tourism sector as well as global variables such as the Euro zone’s GDP growth. The
model is tested both in a static and dynamic framework. Four estimation techniques are
considered, viz Fixed Effects, differenced GMM, System GMM and Random coefficient
estimation. The results indicate that, notwithstanding there are many significant factors
influencing NPL, the most critical elements nevertheless remain declines in the construction
sector and the rise in cross border loans. Interestingly, the study provides important policy
insights which centres on the improvement of credit concentration guidelines as well as the
modification of the MCIB reporting.
Keywords
Mauritian Banks; NPL; Macroeconomic factors; Bank Specific factors