Determinants of Non-Performing Loan: Evidence from the Mongolian Banking Sector

Abstract

The study analyses the determinants of Non-Performing Loans in Mongolian banking sector. In particular, we investigate the impact of macroeconomic and bank specific factors on the ratio of Non-Performing Loans. The panel data set consists of 11 commercial banks over the period for 2007-2016 with total 110 observations. A dynamic panel model based on the Generalized Method of Moments estimation is used. The result was found that bank specific variables (lagged Non-Performing Loans, Return on Equity, loan growth rate) are found statistically significant whereas macro factors (real GDP growth rate, exchange rate, unemployment rate) have insignificant effect. This is so far the first attempt to analyze the determinants of Non-Performing Loans in Mongolia including bank specific factors and using Generalized Method of Moments approach.