Is there a nonlinear relationship between nonperforming loans and bank profitability? Evidence from dynamic panel threshold
| Autor: | Richard Olaolu Olayeni, Xuan Vinh Vo, Segun Thompson Bolarinwa |
|---|---|
| Rok vydání: | 2021 |
| Předmět: |
Strategy and Management
05 social sciences Equity (finance) Financial system Management Science and Operations Research Banking industry Work (electrical) Central bank Management of Technology and Innovation Threshold effect 0502 economics and business Profitability index Business 050207 economics Business and International Management Non-performing loan Nexus (standard) 050203 business & management |
| Zdroj: | Managerial and Decision Economics. 42:649-661 |
| ISSN: | 1099-1468 0143-6570 |
| DOI: | 10.1002/mde.3262 |
| Popis: | This study examines the threshold effect in the nonperforming loans–profitability nexus within the Nigerian banking industry. Using the innovative dynamic panel threshold of Seo, Kim, and Kim (2019), the work documents threshold levels of 3.5% and 5.0% of nonperforming loans for return on average assets (ROAA) and return on average equity (ROAE), respectively. These levels of nonperforming loans ensure equilibrium profitability without stability trade‐off in the industry. Similarly, the robust models suggest the threshold of 5.2% and 2.81% of impaired loans for optimal ROAA and ROAE, respectively. The results are important for policy formulations. It is recommended that the Central Bank of Nigeria (CBN) should review the 5% threshold nonperforming loans adopted in the industry in 2019 prudential guidelines to ensure stability in the Nigerian banking industry. |
| Databáze: | OpenAIRE |
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