Macro and bank specific factors explaining non-performing assets of commercial banks: a cross-country analysis

The present study thrives to identify the major factors influencing NPA of a particular country by analysing a dataset containing data for various macroeconomic factors of ten countries for past nine years (2010-2018). The empirical result of the study reveals that unemployment rate, real interest rate, log (net income of the banking sector), GDP growth rate, and whether the country is developed or not had significant influence on the NPAs of the bank. In second section, we focused on determining various bank-specific factors affecting the NPA specifically for India. From the estimated model for public and private sector bank, we observed that NPAs of public sector banks (PSBs) are majorly influenced by net profit/total funds and log (advance to real estate sector) whereas NPAs of private sector banks also depends on same two factors with an addition of return on assets (ROA). We also made an attempt to forecast the Net NPA ratio in these sectors for next five years by using different forecasting techniques. The predicted NPA values show that net NPA ratio of public and private sector banks may reach 15.23 and 3.23 respectively.