Publication: An analysis of unemployment, inflation and interest rates on non-performing loan in Malaysia
Date
2025-03-04
Authors
Jullia Idani Abu
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Abstract
This research endeavours to explore the intricate relationships and consequential impacts between unemployment rates, inflation, interest rates and their collective influence on Non-Performing Loans (NPLs) in Malaysia. Amidst evolving economic conditions, a nuanced understanding of such relationships is essential for the development of informed policy and the sustenance of banking sector stability. Drawing upon data from the World Bank Open Data
covering the period from 1998 to 2023, this study employs both correlation analysis and multiple regression analysis to examine the strength and nature of the correlations among the independent variables (unemployment rate, inflation, and interest rate) and their impact on the dependent variable, NPL rates.
The investigation reveals a prominent relationship between interest rates and the rate of NPLs, indicating that fluctuations in interest rates have a significant potential to influence the performance of loans. In contrast, the variables of unemployment and inflation rates appear to have a minimal impact on the NPL landscape within Malaysia during the period under review. These findings bear critical implications for policymaking, suggesting a targeted approach
towards interest rate management as a means to mitigate the risk of loans becoming non performing. By shedding light on the dynamics between key economic indicators and NPL rates, this study contributes to the broader discourse on financial system resilience and offers strategic insights for enhancing the long-term stability of Malaysia's banking industry
.Keywords: Relationships, Impacts, Non-Performing Loans (NPLs), Unemployment, Inflation,
Interest Rate
Description
2024