Corruption and Information Sharing as Determinants of Non-Performing Loans

Abstract

Background: There are several factors that lead to the growth or decline of the non-performing loans, such as macroeconomic variables and bank specific variables, banks ownership structure, corruption and information sharing. Among them one of the main factors that affect the non-performing loans are the corruption. In developing countries corruption plays very important role in the growth of non-performing loans. Objectives: This study investigates the impact of corruption at economy level and institution level on the non-performing loans. This study also examines the association of information sharing between depositors, lenders and financial institutions. Methods/Approach: The current study used time series data over the period of 2001 to 2010 and employed OLS method. Results: The results provide no significant association of corruption and information sharing with non-performing loans. Conclusions: The results suggest no significant impact of corruption on non-performing loans because of the nature of the data used, but as literature provides significant impact of corruption on non-performing loans, therefore State Bank of Pakistan and commercial banks can reduce the level of non-performing loans by reducing the chance of corrupt practices by following the rules and regulation of credit allocation, supervision and loan monitoring.

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