Determinants of the Non-performing Loans Ratio in Taiwan: (Privatized Government Banks versus Private Banks)
Date Issued
2015
Date
2015
Author(s)
Wu, Wei-Lun
Abstract
The Banking Act of The Republic of China was revised in 1989. On the one hand make full liberalization of bank interest rates, on the other hand allow the establishment of private banks, letting new competitors entered the market. However, this also turned financial environment in Taiwan into a highly competitive situation. Due to the small market, small scale of Taiwan’s banks, lacking heterogeneity of the product and talent … the banks were unable to support innovation, leading all businesses are concentrated in corporate banking, retailing banking or mortgage business. Serious price competition between each other continued to narrow the interest rate spread. In order to win customers in such situation, banks will tend to lower credit standards, and then push up the ratio of non-performing loans. The stability of financial institutions will affect a nation''s economic, thus this study expect to use some quantitative indicators to summarize the cause of non-performing loans ratio in Taiwan, giving some suggestions to government concerned and banks in Taiwan. This study collected the first quarter of 2007 to the third quarter of 2014 of the commercial banks (private banks and privatized government banks) in Taiwan as study sample. Also, the model used for analysis is panel data model. Empirical results indicate that in financial ratios, the non-performing loans ratio are positive correlated with deposit loan ratio, capital adequacy ratio is negatively correlated with non-performing loans ratio, coverage ratio is negative correlated with non-performing loans ratio.As for the operating characteristics, earning from OBU plus overseas branches is not statistical significant, SME loans ratio presents negative correlation, while the loan market share shows significant negative correlation . As for corporate governance, directors and major shareholders pledge ratio presents negative correlation, manager shareholding ratio presented positive correlations, members of independent director presents significant negative relationship. Finally, as for economic indicators, GDP growth rate is not statistically significant, the unemployment rate presents positive correlation, financial and insurance accounted for the GDP ratio shows significant positive correlation.
Subjects
Non-performing loans ratio
SDGs
Type
thesis
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