Abstract

This study investigates how bank non-performing loans (NPL) affect bank performance and the role of institutional quality in mitigating this impact. Employing ASEAN commercial bank data from 2011 to 2022, we employ panel fixed effects as our main regression method and adopt a stochastic frontier analysis and measure bank performance using bank efficiency. We find that NPL negatively influence bank performance. Furthermore, among institutional quality indicators, regulatory quality, corruption control, and voice and accountability have significant positive effects on bank performance, particularly on Return on Asset (ROA). However, the results of interaction model reveal that corruption control, voice and accountability, and rule of law moderate the negative impact of NPL on bank performance.