Relationship Between Loan Quality and Valuations of Banks in The Stock Exchange of Thailand
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Abstract
This independent study aim to test the relationship between loan quality and value of banks in The Stock Exchange of Thailand. The analysis are conducted both overview data and different groups separated by size – large, medium and small. Using secondary data form quarterly financial statements, from 2008 to 2017. Loan quality were measured by loan growth and non-performing loans. The value of banks measured by Tobin’s Q. Control variables include size of banks (SIZE), amount of capital (CAPITAL), amount of loans (LOANS), amount of deposits (DEPOSITS) and Asset diversity (AD).
The results showed that loan growth are significantly inversely correlated with value of banks in The Stock Exchange of Thailand while non-performing loans have no correlation with the value of banks in The Stock Exchange of Thailand. According to the sized group analysis, the results showed that loan growth are correlated inversely proportional to the value of large banks and medium bank but not with small banks. Another finding reveals that non-performing loans are significantly positive with the value of large banks, but non-performing loans are correlated inversely with the value of medium bank. No correlation is found with small banks. The interaction effect analysis was conducted to test the influence of loan growth to the relationship between non-performing loans and the value of banks in The Stock Exchange of Thailand. The results showed that the coefficient on interaction term is negative and significant. The more increasing of loan growth, the less value of banks when having more non-performing loans.
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