Publication Details
Abstract
Non-performing loans (NPLs) are of particular significance in the context of commercial banks, as they represent a substantial risk to the financial stability of these institutions. This consideration assumes particular importance in developing countries, such as Uzbekistan, where NPLs are a crucial element in assessing financial stability. Despite the role of external factors driven by macroeconomics that affect the performance of the banking sector, this can only affect the management of NPLs and the stability of the economy itself. Despite the fact that the aggregate relationship of macroeconomic variables (inflation, GDP growth, interest rates, credit growth, etc.) is not immediately apparent, further analysis is required to determine the true nature of this relationship) and NPLs is a widely studied subject area, a less discussed one is the banking system in Uzbekistan. The present study utilises econometric models to estimate the effect of macroeconomic factors on non-performing loans (NPLs) in Uzbekistan's commercial banks for the period 2020–2024. Inflation, Gross Domestic Product (GDP), interest rates and credit growth are considered as the variables in the analysis. The impact of interest rates and Gross Domestic Product (GDP) growth on Non-Performing Loans (NPLs) is a multifaceted phenomenon. An increase in interest rates is associated with an escalation in NPLs, while a rise in economic growth is concomitant with a decline in defaults. The present study constitutes the first empirical investigation into the macroeconomic drivers of non-performing loans (NPLs) in the banking sector of Uzbekistan. It thereby fulfils a significant gap in the extant literature on the subject. There are however various learnings and effective risk management, regulatory measures and economic stability have been identified as critical in helping to reduce NPLs. These insights can help policymakers and banks to devise more efficient credit risk management strategies.