The Dynamic Impact of Broad Macroeconomic Conditions on Non-Performing Property Loans: A Comparative Institutional Analysis of Malaysia and Singapore During the COVID-19 Pandemic

Yeoh, Kai Yun (2026) The Dynamic Impact of Broad Macroeconomic Conditions on Non-Performing Property Loans: A Comparative Institutional Analysis of Malaysia and Singapore During the COVID-19 Pandemic. Masters thesis, Tunku Abdul Rahman University of Management and Technology.

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Abstract

This study examines the dynamic impact of broad macroeconomic conditions on non-performing property loans (NPPLs) during the COVID-19 pandemic, focusing on Malaysia and Singapore within a comparative institutional framework. Recognising that the relationship between macroeconomic variables and loan performance is not purely linear, the study adopts a comparative and period-based approach to analyse how inflation, interest rates, unemployment, exchange rates and economic growth influence NPPLs across the pre-pandemic, pandemic and post-pandemic phases. It further considers how differences in institutional structures, regulatory frameworks and policy responses mediate these relationships and contribute to divergent loan performance outcomes. Property loans, due to their high value and long repayment horizon, are particularly sensitive to economic fluctuations, making them a key indicator of financial stability. The analysis employs the Autoregressive Distributed Lag (ARDL) model using monthly time-series data from January 2010 to December 2023. This approach allows for the estimation of long-run equilibrium relationships among variables with mixed orders of integration. Stationarity is tested using the Augmented Dickey-Fuller method, while robustness is confirmed through bounds testing, serial correlation diagnostics and stability checks. The findings reveal that the impact of macroeconomic conditions on NPPLs is time-varying, country-specific and institutionally mediated. In Malaysia, a procyclical relationship is observed, where economic recovery is associated with rising NPPLs, alongside significant exchange rate effects, reflecting greater exposure to external shocks and structural vulnerabilities. In Singapore, unemployment emerges as the most influential determinant, indicating the central role of labour market conditions within its institutionally supported housing finance system. Interest rates exhibit a stabilising influence in both countries, while inflation is generally insignificant in the long run. The study highlights that macroeconomic conditions alone do not fully explain NPPL behaviour; rather, institutional frameworks and policy responses play a critical role in shaping macro-financial dynamics. It suggests that both economies would benefit from incorporating macroeconomic early warning indicators into financial surveillance frameworks, alongside strengthening institution-specific policy mechanisms, to enhance resilience against future economic shocks.