Corruption and Non-Performing Loans

This article empirically evaluates the impact of corruption on the level of non-performing loans (NPLs) using the international bank-level data, spanning over the period 2000-2016, and across 195 countries. We find a positive and statistically significant relationship between corruption and NPLs. We also analyze the channels through which corruption affects NPLs. We find that the impact of corruption on NPLs becomes less pronounced for larger and weakly capitalized banks. The link between corruption and NPLs is higher when the legal environment is weak and for bank-based economies. Corruption also weakens the effectiveness of capital regulation.