FINANCIAL STABILITY, FINANCIAL INCLUSION AND INSTITUTIONAL QUALITY – EMPERICAL EVIDENCE FROM ASIAN DEVELOPING COUNTRIES

Abstract

In the aftermath of the 2008 global financial crisis, the implications of financial inclusion for financial stability has come under increased scrutiny. The objective of this study is to show how financial inclusion, GDP per capita, propotion of domestic credit provided to private sector/GDP, real interest rate, inflation and institutional quality affect financial stability in Asian developing countries by employing Generalized Method of Moments (GMM) to analyse a panel data of 16 countries spanning from 2008 to 2017. The regression results show that financial inclusion, and institutional quality have significantly positive influences on financial stability, non-perfroming loan ratio decreases. Meanwhile, proportion of domestic credit provided to private sector/GDP and real interest rate have significantly negative impact on financial stability, non-performing ratio increases. This results have several significant contributions to policy makers of these countries.

Keywords: Financial stablility, financial inclusion, institutional quality, GMM.