Macroeconomic factors that affect the quality of lending in Malaysia / Mohamad Hanis Kamarudin

This paper is aimed to analyse the impact of the macroeconomic variables in the quality of lending in banking system of Malaysia. Non-performing loans (NPL) has been used to explain the quality of lending. This study is motivated by the hypothesis that macroeconomic variables have effects on the non performing level. The paper will be focusing on finding out the relations of the NPL and the gross domestic product (GDP), unemployment rate, exchange rate, and inflation rate. The sample of this study comprises of 32 observations for each of the independent and dependent variables, on a quarterly basis over 8 years period, from Jan 2006 to December 2013. The quarterly data is collected from the Data Stream besides from the Bank Negara Malaysia (BNM), Department of Statistics Malaysia and other sources. The methodology used in this research is Multiple Linear Regression Analysis and Correlation Coefficient in order to reveal about the relationship between the chosen variables. Interactive software package E-views would be used for testing and analysing the data collected. This study expected to get the findings that the quality of lending is significantly affected by the macroeconomic environment: the credit risk increases when GDP decrease and is also positively affected by an exchange rate. The set of 2 independent variables as factors determining the changes in amount of doubt fill and non-performing loans was created.