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Firm-Specific and Macroeconomic Determinants of Default Loans in Commercial Banks Panel Evidence Published Date: December 2020 Author Name: Md. Golam Ramij, Lecturer, Department of Banking and Insurance, University of Dhaka, Dhaka, Bangladesh, Email: ramij@du.ac.bd Md. Shahidul Islam, Professor, Department of Banking and Insurance, University of Dhaka, Dhaka, Bangladesh, Email: sizahid2000@du.ac.bd DOI Number: Abstract: Abstract: This study investigates the determining factors of default risk of commercial banks in Bangladesh considering different bank-specific and macroeconomic variables. The panel study comprised data of twenty conventional commercial banks spanned from the years of 2006 to 2019. Applying the Fixed Effect Model (FEM), the estimated result shows that the growth rate of loans, cost to income ratio, capital adequacy ratio, return on assets, and bank size negatively associates with commercial banks‟ default loans. On the other hand, the GDP growth rate and inflation rate among macroeconomic variables are positively associated with the default loan ratio. Using Vector Error Correction Model, we have observed a longrun causality, and there is no short-run causality except bank size and inflation on default risk. This paper is also consistent with the analysis of Berger & De Young (1997) hypothesis of bad management, skimping, and moral hazard. |