This study examines how the health of the banks in ASEAN-3 countries namely Indonesia, Malaysia and Thailand respond to the change in exchange rates and foreign interest rates in four large economies. The transmissions of the two external factors through domestic factors in each ASEAN-3 countries eventually affects Non-Performing Loan (NPL) of commercial banks. This study uses the monthly time series data and the renowned Structural Vector Autoregressive (VAR) model comprising five variables, namely exchange rate, foreign interest rate, domestic interest rate, money supply, and non-performing loan (NPL). The results indicate that there are different effects between ASEAN-3 countries, which can be classified as short-run effect and long-run effect. In the long run effect, external factors have a dominant role in determining NPL in ASEAN-3 countries. Yuan has the biggest effect on Malaysia’s NPL, while Indonesia is more affected by European interest rates rather than the fluctuation of the US currency and China’s interest rates. Among ASEAN-3 countries, Malaysia is the one that is the most vulnerable to external factors. While Thailand’s NPL is affected dominantly by domestic factors. This study shows that the Fed Funds Rate (US official interest rate) is not always the dominant factor affecting the health of domestic banks in ASEAN-3.

The study is aimed at investigating the main factors that affect the interest rate yields, in the long-term. In addition, the study surveys the theories and literature relating to the determinants of interest rate. The importance of which is essential not only for governments, but also for banks and corporate financial risk management decisions, including risk exposures in banks and capital markets. Interest rate influences corporate profit as well as growth. For this purpose, the study examines the impact of budget deficit, risk-free rate, capital inflows, money supply and business cycles on real interest rate in Jordan. These factors are based upon well-established theories and straightforward practical view as interest rate determinants. Using data for (1990-2015), the study employed Johansen’s co-integrating test, which takes into consideration the long-term unsynchronized relationships. The data is tested for normality, symmetric correlations, covariance diagonal and unit root. The results show that the government budget deficit, short-term risk-free interest rate, capital inflows, money supply and business cycle are long-term determinants of the real interest rate in Jordan. The coefficients of government budget deficit, short-term risk-free rate, money supply and business cycle all are inversely affecting the real interest rate, while capital inflows has a positive impact on the real interest rate.