DETERMINANTS OF NON-PERFORMING LOANS IN KAZAKHSTAN

Abstract

This paper examines the determinants of non-performing loans (NPLs) in Kazakhstan’s banking sector for aggregate volume of bad loans. In particular, it investigates the impact of macroeconomic and bank specific factors on the volume of NPLs. The sample comprises 29 banks over the period from 2007 to 2014. This study uses the dynamic panel data method based on the Generalized Method of Moments estimation proposed by Arellano and Bond (1991). It should be noted that macroeconomic factors together with bank specific characteristics have a substantial effect on the level of NPLs in a particular bank. More diversified and highly capitalized banks tend to have less NPLs. On the contrary, highly leveraged banks conditional on their size tend to have higher volume of NPLs. This is so far the first attempt to look at the determinants of NPLs in Kazakhstan using the novel data set on commercial banks.