Literature Review

The topic of high NPL ratios in national economies has been the focus of many research projects across the world in recent years. The relationship between NPL ratios and the overall health of a national economy is well-established; a meta-analysis by a team of researchers in 2019 led by Professor Shihadeh, Gamage, and Hannon clearly showed the relationship between the increasing NPL ratios in select countries and the impact they had. In addition to that study, multiple studies conducted at universities around the world point to the fact that a high NPL ratio is a primary indicator for bank failure. If taken at the macroscopic view, a national economy that has a high NPL amount when compared to the total loan or even nominal GDP has been shown through research to indicate a weaker economy that is at greater risk to a recession than normal economies.