Corruption and Information Sharing as Determinants of Non-Performing Loans

Background: There are several factors that lead to the growth or decline of the Non-performing loans (NPLs), such as macroeconomic variables and bank specific variables, banks ownership structure, corruption and information sharing. Among them one of the main factors that affect the NPLs is the corruption. In developing countries corruption play very important role in the growth of NPLs. Objectives: This study investigates the impact of corruption at economy level and institution level on the NPLs. This study also examines the association of information sharing between depositors, lenders and financial institutions. Method: The current study used time series data over the period of 2001 to 2010 and employed OLS method. Results: The results provide no significant association of corruption and information sharing with NPLs. Conclusions: The results suggest no significant impact of corruption on NPLs because of the nature of data used, but as literature provide significant impact of corruption on NPLs, therefore State Bank of Pakistan (SBP) and commercial banks can reduce the level of NPLs by reducing the chance of corrupt practices by following the rules and regulation of credit allocation, supervision and loan monitoring.