Nexus between non‐performing loans and economic growth in emerging countries: Evidence from Turkey with wavelet coherence approach

• Published in: International journal of finance and economics Vol. 28; no. 2; pp. 1250 - 1260
• Main Authors: Kartal, Mustafa Tevfik, Kirikkaleli, Derviş, Ayhan, Fatih
• Format: Journal Article
• Language: English
• Published: Chichester, UK John Wiley & Sons, Ltd 01-04-2023; Wiley Periodicals Inc
• Subjects: Economic growth; Nonperforming loans; NPLs; Turkey; wavelet coherence approach; Turkey
• ISSN: 1076-9307; 1099-1158
• DOI: 10.1002/ijfe.2474

The study aims to capture the co‐movement between non‐performing loans (NPLs) and economic growth (EG) in Turkey using the quarterly data from 2005/Q1 to 2019/Q4 and applying the wavelet coherence approach, which allows the study to explore both the long‐run and short‐run causal linkages between NPLs and EG in Turkey. The findings reveal that (a) there is a significant vulnerability in NPLs and EG over the selected period at different frequency levels; (b) EG in Turkey has a strong power for explaining NPLs in the long‐run; (c) EG causes NPLs in Turkey in the short‐term between 2007 and 2010, which implies that the credit growth in the period with the increasing NPLs supports EG of Turkey. The outcomes of the tests underline the importance of EG for predicting NPLs in Turkey.