Government failures and non-performing loans in Asian countries

Purpose. Non-performing Loans (NPLs) may determine an overall weakness of the banking system within a country. The purpose of the present study is to analyse the impact of government failures on NPLs in Asian countries in the time span 2000-2020. The variables employed as proxies of government failures are: Public debt as % of GDP and a Government ineffectiveness index proposed by the World Bank. Design/methodology/approach. The econometric approach employed is a panel GLS model with heteroskedasticity and autocorrelation specific to each panel. Findings. The results confirm that public debt as % of GDP and governmental ineffectiveness impacted significantly on NPLs for Asian countries in the observed period. Originality/value. The literature offers similar results only for some individual Asian countries, while a wider analysis is lacking for Asian macro-areas. The present paper considers thirty-one Asian countries, and supports the idea that a healthy financial sector is correlated to institutional quality and political regime. Hence, policy makers are advised to monitor governance indicators to reduce NPLs.