Macroeconomic Determinants of Non-Performing Loans: An Empirical Study of Some Arab Countries

Abstract

The issue of non-performing loans is one of the factors that reflect the soundness of the banking sector. The main objective of this study is to identify macroeconomic determinants of non-performing loans in some Arab countries through the period 2000-2012 using the dynamic panel data approach. The outcomes of this paper suggest that inflation rate has a negative impact on NPLs, whereas improvement in macroeconomic and financial conditions seems to have a negative impact on the level of NPLs. Regarding the impact of the global financial crisis, the results show that the crisis had a negative impact on the level of NPLs. With regard to household consumption, the outcomes point out to mixed results where this effect seems to be negative in non-petroleum countries but positive in petroleum countries, whereas increasing of government spending is associated with low level of NPLs in both groups of countries. Moreover, an increase of the aggregate debt burden has a positive impact on the level of bad loans whereas expansionary monitory policy and improvement of terms of trade in petroleum countries have a significant negative effect on NPLs but this effect is not clear in non-petroleum countries.

The Impact of Macroeconomic Factors on Credit Risk in Conventional Banks and Islamic Banks: Evidence from Indonesia

“…This means that when there is a high expansion in money supply will give good impact to credit risk. This finding is in line with similar studies Nikolaidou (2011); and Touny & Shehab (2015) suggest that money supply increase productivity and stimulates investment and consumption activity. Consequently, the income will increase and the ability to pay the loan will enhance.…”

“…Inflation during a short period of time will not reduce people's desire to fill their needs, then it means economic activity increase, then businessman can make profit. Therefore, increase the borrower's capability to pay the loan (Touny & Shehab, 2015). Similar results are reported by Ahmad & Bashir (2013); Shingjergji (2013);Babihuga (2007); Dash and Kabra (2010).…”

“…This study will attempt to highlight the impact of macroeconomic factors to credit risk (NPL and NPF). Some researcher believes that macroeconomic conditions are the main source of the systematic risk that reflects on the growth of or decline of loan default Touny & Shehab (2015). In addition, Ahmad & Bashir (2013) explain that during depression asset price kept as collateral will decline and results in growth of NPL.…”

Modeling the influence of inflation on the level of non-performing loans in Cyprus commercial banks

“…there are studies that confirm that inflation is negatively associated with nonperforming loans [8]. And there are also studies that find support for a positive relationship between nonperforming loans and inflation [9][10][11].…”

Prevention Effectiveness of Non-Performing Financing in the Indonesian Islamic Bank

“…Others causes are related to solvability which includes Capital Adequacy Ratio (CAR), Financing to Deposit Ratio (FDR) on profitability, Return on Asset (ROA), operating income on expense (BOPO), the operational Efficiency ratio (OER), and Net Interest Margin (NIM) (Asnaini, 2014). Furthermore, the internal factor related to the increasing liabilities and market conditions also adds to its causes (Touny, 2015). According to Fernandez (2017), it occurs for the moral hazard to carry out credit expansion in dealing with the increasingly competitive business growth.…”