Nonperforming loans and related lending: Evidence from Ukraine.

This study examines bank-specific factors that determine nonperforming loans (NPLs) in Ukraine. Analysis of an unbalanced sample of 207 banks from 2008 to 2020 reveals that the NPLs of banks increase with related lending, suggesting that related lending is detrimental to the soundness of bank loans owing to the standard information advantage that can be offset by the bank's conflict of interest in banking relationships. Moreover, a positive shock to NPLs causes a substantial increase in related lending. These results highlight the importance of close monitoring of banks' lending practices to related parties for suppressing excessive risk-taking behavior of banks. • Banks' nonperforming loans (NPLs) increased with related lending. • Related lending is detrimental to the soundness of bank loans in Ukraine. • Loan concentration effect on NPLs is ambiguous. • Positive shock to NPLs increases related lending and decreases loan concentration. • Closely monitoring related party lending suppresses risk-taking and moral hazard. [ABSTRACT FROM AUTHOR]