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Masood, Omar (2004) Non-performing bank loans and banking crisis in the Pakistani banking system. Doctoral thesis, London Metropolitan University.
This thesis investigates the Pakistani banking crisis, which was the result of non-performing bank loans over the period 1996-98. The thesis uses primary data collected for this research through questionnaires from the credit managers who approved these non-performing bank loans. The questionnaire-based methodology has not been used previously in studies of banking crises and non-performing bank loans. The aim of this thesis has been to investigate the causes of the banking crisis in Pakistan, with particular emphasis on the causes of non-performing bank loans in the five major public owned commercial banks. Although a lot of recent literature has been written on banking crises especially in third world countries, little has been written about the Pakistani banking crisis. The methodology focuses on interviews and questionnaires carried out by the researcher directly with the credit managers, who authorized these non-performing loans. The questionnaires were designed to analyze the lending attributes of the credit managers. Quantitative methodology and standard statistical methods, as well as the application of the ordered probit model which has not been used previously in studies relating to the banking crises and non-performing bank loans, have been used for analysing the survey data. It was found that the banking sector has been riddled with the problems of poor quality management, political influence and the resultant portfolio of high level of non-performing loans that formed the lion share of industry's loans. The inefficiency of the banking sector was highlighted in our findings, showing an increase in interest spread between lending and deposit, as well as unequal distribution of credit among different sectors. After the application of the order probit model we were able to determine communication facilities provided to the credit managers, years of service within the bank, and the years of experience as credit manager, as the variables which have strongly influenced the extent of non-performing bank loans in the five public owned Pakistani commercial banks. It was also found that basic education (BE), professional education (PE) as well as the years of experience as credit manager (YOE) as the variables which have influenced the extent of recovery of non-performing bank loans in public owned Pakistani commercial banks.
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