Table 3 Definitions and sources of variables
Variables | Definitions | Signs | Sources |
|---|---|---|---|
Dependent variable | |||
Non-performing loans | Value of non-performing loans divided by the total value of the loan portfolio (NPL/TL) | World Bank | |
Independent variables | |||
Banking sector-specific variables | |||
Liquidity | Bank liquid reserves to bank assets ratio (%) (LIQ/TA) | – | |
Capital regulation | Bank regulatory capital to risk-weighted assets (%) (REQ/RWA); Bank capital to total assets (%) (C/TA) | – | World Bank, Central Banks |
Profitability | Bank return on assets (ROA); Bank return on equity (ROE) | – | |
Inefficiency | Bank cost to income ratio (%) (C/I); bank overhead costs to total assets (%) (OC/TA) | + | |
Income diversification | Bank non-interest income to total income (%) (NI/TI) | – | |
Country and global-level variables | |||
Country risk index | Country risk is an index using the proxy of the ICRG country risk index (CRI). A country’s risk score is between 0 to 100, which 0 indicating the highest risk and 100 as the lowest risk | ± | |
Political risk index | Political risk is an index (PRI) including government stability, socio-economic conditions, investment profile, internal conflict, external conflict, corruption, military in politics, religious tensions, law and order, ethnic tensions, democratic accountability, and bureaucracy quality. The score range is from 0 to 100, which 0 indicating the highest risk and 100 as the lowest risk | ± | |
Economic risk index | Economic risk is an index (ERI) containing the GDP per head, real GDP growth, annual inflation rate, budget balance (Percent of GDP), and current Account (percent of GDP). An economic risk score is between 0 to 50, which 0 indicating the highest risk and 50 as the lowest risk | ± | |
Financial risk index | Financial risk is an index (FRI) containing the foreign debt (Percent of GDP), foreign debt service (percentage of exports of goods and services), Current Account (percentage of exports of goods and services), net international liquidity in months, and exchange rate stability. A financial risk score is between 0 to 50, with 0 indicating the highest risk and 50 as the lowest risk | ± | |
Financial market development | Domestic credit provided by the banking sector to GDP (%) (DC/GDP) | + | World Bank |
Lending interest rate | The lending rate is the bank rate that usually meets the short- and medium-term financing needs of the private sector (LIR) | + | |
Global risk | The annual Global Economic Policy Uncertainty index (GR) is based on a GDP-weighted average of national EPU indices for 20 foreign countries. A higher GR score indicates a higher global risk | + | |