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Does fiscal consolidation affect non-performing loans? Global evidence from Heavily Indebted Countries (HICs)
Rahman, Habib Ur Arian, Adam Sands, John
Rahman, Habib Ur
Arian, Adam
Sands, John
Abstract
This study explores fiscal consolidations’ impact on non-performing loans (NPLs) in highly indebted countries (HICs) following the global financial crisis (GFC) and subsequent sovereign debt crisis. A dynamic panel data estimator was applied to obtain the unbiased estimator due to NPLs’ time persistence. The findings reveal that fiscal consolidation measures increase NPLs since they limit the household and business loan-serving capacity. Extended analysis categorises fiscal consolidation episodes into (1) the fiscal consolidation weak form (FCWE) and (2) the fiscal consolidation strong form (FCSE). The extended analysis results reveal that the FCWE and FCSE improve NPLs by 1.55% and 31.10%, respectively. The weak-to-strong form transition of the fiscal consolidation analysis resulted in improving NPLs by 28.55 percentage points. NPL definition challenges, the potential influence of loan restructuring and regulatory restrictions, and implications for policymakers and financial institutions in managing NPLs in highly indebted economies were explored. Investigating the potentially different effects of both forms of fiscal consolidation (FCWE and FCSE) on NPLs in countries with different definitions of NPLs, including a comparison study between different definitions, was identified as an implication for future research. Finally, future studies should examine how restrictions on IFRS 9 may affect the FCWE and NPL as well as FCSE and NPL associations.
Keywords
non-performing loans; fiscal consolidation; highly indebted countries; global financial crisis; sovereign debt crisis
Date
2023
Type
Journal article
Journal
Book
Volume
16
Issue
9
Page Range
1-15
Article Number
ACU Department
Peter Faber Business School
Faculty of Law and Business
Faculty of Law and Business
Collections
Relation URI
Source URL
Event URL
Open Access Status
Published as ‘gold’ (paid) open access
License
CC BY 4.0
File Access
Open
Notes
Copyright: © 2023 by the authors.
Copyright: © 2023 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/).
Copyright: © 2023 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/).