Influential Article Review - Exploring the impact of lending to bank risk

Abstract

This paper examines banking and finance. We present insights from a highly influential paper. Here are the highlights from this paper: This study empirically analyzes whether the rapid growth of loans and risk-taking behavior during the expansion of loans affected non-performing loans (NPLs) and the solvency of financial institutions in the Turkish banking system. Using the GMM Generalized Method of Moments, this study used data on Turkish banks from 2011 to 2017 to test two hypotheses on the effects of loan growth on NPLs and solvency. This study finds significant results for the effect of loan growth on NPLs and solvency. NPLs rose from the previous year’s loan growth, which tended to reduce solvency. Due to selected research methods, the results may lack generality. Therefore, future studies should test the propositions herein further. The results indicate that careful allocation behavior is required when lending. Additionally, these findings may be helpful to financial managers and decision makers. This study confirms the need to determine how to allocate loans during the loan boom periods. For our overseas readers, we then present the insights from this paper in Spanish, French, Portuguese, and German.