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<p>This study examines the effects of regulatory systems on Non-Performing Loans (NPLs) of commercial banks, how these effects differ across Lower-Middle-Income (LMI), Upper-Middle-Income (UMI), and High-Income (HI) countries, and how a country’s income level moderates these effects. Using data from 2010 to 2021, from the World Bank, and based on the results of heteroskedasticity, serial correlation, and Cross-sectional Dependence (CD) tests, this study applies Pooled Ordinary Least Squares (OLS) with Driscoll and Kraay standard error and Panel Corrected Standard Error (PCSE) methods. From the empirical investigation, this study finds that regulatory quality and rule of law significantly reduce NPLs of commercial banks. However, Improvement in regulatory quality reduces NPLs in HI and UMI countries, but increases NPLs in LMI countries. A country’s HI and UMI significantly strengthen, but LMI significantly reverses the negative relationship between the quality of the regulatory systems and NPLs. These findings have practical implications for managing NPLs in commercial banks.</p>

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Country’s regulatory system and non-performing loans: moderating effect of country’s income level

  • 期刊论文

  • 发表日期：

    2026年2月20日

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  • Protap Kumar Ghosh,
  • Fakarudin Kamarudin,
  • Saira Kharuddin

摘要

This study examines the effects of regulatory systems on Non-Performing Loans (NPLs) of commercial banks, how these effects differ across Lower-Middle-Income (LMI), Upper-Middle-Income (UMI), and High-Income (HI) countries, and how a country’s income level moderates these effects. Using data from 2010 to 2021, from the World Bank, and based on the results of heteroskedasticity, serial correlation, and Cross-sectional Dependence (CD) tests, this study applies Pooled Ordinary Least Squares (OLS) with Driscoll and Kraay standard error and Panel Corrected Standard Error (PCSE) methods. From the empirical investigation, this study finds that regulatory quality and rule of law significantly reduce NPLs of commercial banks. However, Improvement in regulatory quality reduces NPLs in HI and UMI countries, but increases NPLs in LMI countries. A country’s HI and UMI significantly strengthen, but LMI significantly reverses the negative relationship between the quality of the regulatory systems and NPLs. These findings have practical implications for managing NPLs in commercial banks.