Date of Award

1-1-2000

Thesis Type

Masters

Document Type

Thesis

Divisions

Faculty of Business and Economics

Department

-

Institution

Universiti Malaya

Abstract

It is crucially important to understand the connection between banking sector fragility and the nonperforning loans (NPLs) problem. The problem of mounting NPLs gained much prominence during the recession that hit particularly all countries over the world in 1980s. It is again become prominent following the financial crisis that recently hit the Asian countries. This study examines various factors contributing to the NPL problem, where some endogenous as well as exogenous factors are identified. Poor management and poor lending policies, fraud and embezzlement, moral hazard incentives, heavy government intervention and weaknesses in prudential regulation and supervision are among the factors highlighted in this paper. The consequences of NPLs have been identified at individual bank level and at banking system level. The NPLs are financial tapewonns: when they are greater than anticipated, they eat up capital. They reduced banks' profitability and finally caused banking sector distress. Finding the right policies and strategies for dealing with the NPLs problem can be an arduous task. As the NPL problems in the emerging economies have multiple causes, there is therefore no single solution. However, a resolution of the NPLs problem requires effective institutions to drive bank restructuring efforts, an effective legal system for loan recovery and also the political will to make many tough decisions. Resolving NPLs problem is crucial to restore investors' confidence and help revive the economy onto a sustainable growth path.

Initial

snms

Additional Information

Dissertation (M.A) -- Faculty of Business and Economics, Universiti Malaya, 2001.

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