LOAN DEFAULTS AND BANK PERFORMANCE, A PARDL ANALYSIS: IS IT A CRITICAL CONDITION FOR BANKS’ FINANCIAL HEALTH?

Authors

  • Dimakatso Sekwati Department of Finance and Investment Management-CBE, University of Johannesburg, Johannesburg 2006, South Africa
  • Prof Oliver Takawira Department of Finance and Investment Management-CBE, University of Johannesburg, Johannesburg 2006, South Africa
  • Emmanuel Amo-Bediako Department of Finance and Investment Management-CBE, University of Johannesburg, Johannesburg 2006, South Africa

Keywords:

Loan Defaults, Commercial Banks, South Africa, Return on Assets, Return on Equity, Growth, Panel Autoregressive Distribution Lag.

Abstract

The research investigates how non-performing loans influence banking sector outcomes in South Africa, using a quantitative framework and a three-stage panel data approach. Loan default remains a widely discussed issue both within South Africa and internationally. The analysis is based on data from 10 commercial banks covering the period 2012–2023. The Panel Autoregressive Distributed Lag (PARDL) method was employed to examine both long-run and short-run associations between loan default levels and bank performance. Empirical results indicate that, over the long term, loan defaults exert a statistically significant adverse effect on the performance of South African banks. In addition, the findings confirm a one-way causal relationship running from loan defaults to bank performance. The study recommends that banks strengthen governance and risk control mechanisms to mitigate default risk. Suggested measures include implementing asset-backed recovery frameworks, increasing loan loss provisioning, diversifying credit portfolios, and reinforcing compliance with regulatory standards.

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Published

2026-06-18

Issue

Vol. 18 No. 2 (2026): International Journal of Economics and Financial Studies

Section

Original Article