Abstract:
This paper applies dynamic panel estimates on 22 commercial banks in
Pakistan to determine the factors that affect their asset quality. Consequently, the
study tests for a comprehensive array of both bank-specific and macroeconomic
variables collected quarterly from 2008 to 2016. The empirical analysis confirms
that bad asset quality can be explained by retarded GDP growth and unfavorable
movement in exchange and lending rates. Within the bank-specific variables,
non-performing loans are the most responsive to loans to the agriculture and
energy sectors, level of capitalization, size of the lending institution and quality
of management
