Non-performing loans (NPLs), liquidity creation, and moral hazard: Case of Chinese banks

Umar, Muhammad; Sun, Gang

doi:10.1186/s40589-016-0034-y

China Finance and Economic Review

Table 4 The effect of NPLs on liquidity creation

From: Non-performing loans (NPLs), liquidity creation, and moral hazard: Case of Chinese banks

	Broad measure of liquidity creation					Narrow measure of liquidity creation
	LC_CF	LC_CF	LC_CF	LC_CF	LC__CF	LC_CNF	LC_CNF	LC_CNF	LC_CNF	LC_CNF
NPL_TL	−0.006	−0.017	−0.005	0.015	−0.03	−0.011*	−0.014**	−0.012	−0.006	−0.038*
NPL_TL	(−0.50)	(−1.17)	(−0.26)	(0.62)	(−1.43)	(−1.72)	(−2.11)	(−0.79)	(−0.36)	(−1.72)
L.NPL_TL		0.007	0.006	−0.002	0.031		0.004	0.005	0.011	0.044**
L.NPL_TL		(0.44)	(0.32)	(−0.11)	(1.53)		(0.72)	−0.38	(0.66)	(2.14)
L2.NPL_TL			−0.007	−0.006	−0.004			−0.004	−0.007	−0.004
L2.NPL_TL			(−1.01)	(−0.86)	(−0.23)			(−0.65)	(−1.30)	(−0.26)
L3.NPL_TL				0.003	−0.0005				−0.0003	−0.005
L3.NPL_TL				(0.58)	(−0.07)				(−0.06)	(−0.75)
L4.NPL_TL					0.003					0.001
L4.NPL_TL					(0.53)					(0.17)
LN_TA	−0.014	−0.019*	−0.027***	−0.017**	0.003	−0.016*	−0.023***	−0.028***	−0.020**	−0.007
LN_TA	(−1.24)	(−1.92)	(−3.05)	(−2.02)	(0.53)	(−1.85)	(−2.87)	(−3.32)	(−2.40)	(−0.70)
AVG_LNS	0.429***	0.289***	0.435***	0.470***	0.324***	0.280***	0.347***	0.501***	0.576***	0.495***
AVG_LNS	(4.06)	(2.93)	(4.20)	(4.50)	(2.78)	(3.48)	(3.86)	(5.00)	(5.56)	(4.05)
MKT_POW	−0.657	−0.536	−0.357	−0.586*	−0.908**	0.138	0.400	0.168	0.065	−0.462
MKT_POW	(−1.35)	(−1.31)	(−0.99)	(−1.66)	(−2.41)	(0.34)	(1.03)	(0.44)	(0.17)	(−1.08)
Z_SCR	−0.001	−0.008***	−0.006**	−0.007***	−0.003	0.002	0.002	0.0003	0.0004	0.001
Z_SCR	(−0.33)	(−3.14)	(−2.52)	(−2.66)	(−0.98)	(0.72)	(0.81)	(0.12)	(0.14)	(0.27)
ROAE	0.006***	0.008***	0.007***	0.007***	0.008***	0.003**	0.003**	0.005***	0.004**	0.002
ROAE	(2.64)	(4.63)	(4.60)	(4.48)	(3.97)	(2.34)	(2.22)	(2.97)	(2.57)	(0.72)
EAR_VOL	0.101	−0.078	−0.106**	−0.084	−0.078	−0.004	−0.021	−0.046	−0.051	−0.011
EAR_VOL	(0.94)	(−1.42)	(−2.19)	(−1.57)	(−0.81)	(−0.13)	(−0.71)	(−1.03)	(−1.06)	(−0.11)
TE_TA	−1.049**	−0.702	−0.961**	−0.758	0.361	−1.096***	−1.056***	−0.931**	−0.829*	−0.537
TE_TA	(−2.20)	(−1.40)	(−1.98)	(−1.55)	(0.71)	(−3.05)	(−2.68)	(−2.03)	(−1.75)	(−1.01)
IBR	−0.01*	−0.008	−0.004	−0.0001	−0.001	−0.015***	−0.012***	−0.011**	−0.01*	−0.004
IBR	(−1.93)	(−1.46)	(−0.87)	(−0.02)	(−0.16)	(−3.65)	(−2.83)	(−2.49)	(−1.93)	(−0.48)
LN_POP	−1.039	−1.087	−1.797	−2.657**	−3.713**	−2.038**	−1.608	−1.69	−1.425	−2.773
LN_POP	(−0.89)	(−0.72)	(−1.35)	(−2.28)	(−1.98)	(−2.33)	(−1.64)	(−1.49)	(−1.39)	(−1.45)
GDP	0.005	0.007	0.004	0.003	−0.007	0.004	0.003	0.001	0.005	−0.004
GDP	(0.93)	(1.39)	(0.96)	(0.56)	(−0.90)	(1.03)	(0.78)	(0.3)	(0.78)	(−0.49)
CONS.	7.545	8.05	13.251	19.225**	26.575*	14.860**	11.86*	12.462	10.346	19.915
CONS.	(0.90)	(0.74)	(1.39)	(2.29)	(1.96)	(2.37)	(1.69)	(1.53)	(1.40)	(1.45)
Sargan (p value)	0.710	0.760	0.990	0.002	0.451	0.282	0.358	0.05	0.241	0.762
AR (1) (p value)	0.198	0.547	0.707	0.183	0.062	0.106	0.143	0.083	0.287	0.457
AR (2) (p value)	0.819	0.843	0.974	0.972	0.585	0.613	0.798	0.649	0.839	0.952
N	420	396	367	282	216	445	418	384	291	221

Table 4 reports the results regarding the impact of non-performing loans on bank liquidity creation, obtained by one-step system GMM estimation. The dependent variables are either broad or narrow measure of liquidity creation standardized by total assets. L with a number before an independent variable represents lag. Parentheses denote t values, and *, **, and *** represent statistical significance at 10, 5 and 1 % level, respectively

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