Factors influencing non-performing loans for commercial banks in Malaysia / Anis Nabila Asha'ari

The credit risk is the major risk that a bank may encounter in the lending channel and this risk can be assessed through non-performing loans of the banks. Poor credit risk management can affect the banking performance as it can diminish asset quality, raise loan losses and might harm commercial banks' profitability. The goal of this study is to look at the factors that influence non-performing loans for Malaysian commercial banks with a focus on macroeconomic factors include the Exchange Rate, Interest Rate, and Gross Domestic Product. This study examines annual data from five Malaysian commercial banks selected over 18 years from 2003 to 2020. Overall, the findings of the study revealed that the exchange rate have negative and significant influence on nonperforming loans and interest rate have positive and significant impact on nonperforming loans. Nevertheless, GDP growth, unfortunately, shows an insignificant influence on non-performing loans with a positive correlation. Thus, this research is necessary because the findings may assist bank management in managing their lending policies and credit risk assessments to avoid a massive bad debt crisis in the banking sector.