In emerging economies, the effect of excessive credit growth and non - performing loans on banking crisis

Resumen

Crediting in the banking sector plays an important role for developed and developing countries, which have built their financial system more on banking rather than capital markets. For this reason, it is monitored continuously by public authorities and measures are taken to control credit supply in rapid credit increases. In addition, strict provisioning rules for non-performing credits are under practice for non-performing loans. It is well known that in emerging markets strong credit growth in a given period are likely to end up with financial crisis.

In this study, the effects of credit-based variables on bank crises in the emerging 23 economies were investigated. In particular, the effects of credits and non-performing loans on crises are focussed. Additionally, bank system specific and macroeconomic control variables are included in the analysis. Findings show that private sector lending by banks and non-performing loans reflecting credit risk do not explain bank crises. Instead, it has been determined that the provisions for non-performing loans by banks and the credit gap that is considered to reflect the systemic risk in the banking system affect crises.