An Empirical Study of the Relationship between Economic Policy Uncertainty and Banks’ Non-performing Loan Ratios

Jingxiang Tong

doi:10.63313/EBM.9135

Authors

Jingxiang Tong Southwest Petroleum University, Chengdu 610500, China Author

DOI:

https://doi.org/10.63313/EBM.9135

Keywords:

Economic Policy Uncertainty, Non-performing Loan Ratio, Asset Prices, Loan Growth

Abstract

Using panel data for 117 Chinese banks over the period 2011–2022, this paper examines how economic policy uncertainty influences banks’ non-performing loan ratios. The empirical evidence shows that rising economic policy uncertainty increases commercial banks’ non-performing loan ratios. Specifically, economic policy uncertainty affects these ratios through two main channels: asset returns and credit growth. Further analysis reveals that the effects of economic policy uncertainty on non-performing loan ratios are heterogeneous across banks of different sizes. In particular, state-owned banks are less affected by shocks stemming from economic policy uncertainty than non-state-owned banks.

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