Panel analysis reveals non-performing assets consistently reduce profitability during economic shocks in commercial banks, highlighting the need for dynamic stress-testing frameworks.
Key Points
Investigate the relationship between non-performing assets and commercial bank profitability across major economic disruptions, including the global financial crisis, demonetization, and COVID-19.
Analyzed a balanced panel of 30 public and private sector commercial banks in India from 2004 to 2024.
Identified structural regime shifts using Bai–Perron multiple breakpoint tests and Chow tests.
Estimated relationships using HAC-corrected OLS static panel regressions and dynamic system generalized method of moments (GMM).
Non-performing assets exerted a statistically significant negative impact on bank profitability across all structural break regimes.
Bank size positively influenced return on assets particularly during crisis periods, whereas market concentration produced regime-dependent effects.
The interaction between inflation and broad money significantly moderated bank profitability during transitional economic phases.