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The aggregate non-performing loans ratio of domestic banks declines from 8.16% as of 2001 to current 2.33%, suggesting an improvement of the soundness of financial institutions. Because of the 2005 “cash card and credit card storm,” many banks sold their bad debt, significantly reducing their profitability. In 2006 RTC took over Taitung Business Bank and Enterprise Bank of Hualine as a consequence of these banks’ too high non-performing loans ratio and failed tries of capital injection. After the 2007 Rebar storm, RTC takes over the Chinese Bank. As of 2006, the surplus amount of the cash card and credit card of the Chinese Bank was NT$280 billion, but only NT$17 billion alone turned to be sold as bad debt. Due to the bad constitution of the Chinese bank, it loses the depositors’ confidence; and any small issue may trigger a bank run. Non-performing loans ratio is one important index in inspecting bank constitution. It is not exaggerated that a financial storm may impact the whole economy.
This study investigates the interactive relationship of macroeconomic variables on non-performing loans ratio of domestic banks. The macrovariables under research include the economic growth rate, the increasing rates of consumer price index, of currency supply (M1B),the stock market return, the unemployment rate, the change rate of consumer credit loans.
I take care of the potential unstability or cointegration of variables by ADF tests. Then, VAR regression and Granger causality are run on the seasonal data from 1989/1 through 2006/3. I find no evidence on long-term cointegration between variables. In the short term, the non-performing loans ratio of domestic banks is under the influence of the macrovariables in question. Specifically, the unemployment rate, economic growth rate, and increase rate of M1B Granger lead the non-performing loans ratio of domestic banks.
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