American Journal of Economics and Business Administration

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

Mahmoud Abdelaziz Touny and Mohamed Abdelhameed Shehab

DOI : 10.3844/ajebasp.2015.11.22

American Journal of Economics and Business Administration

Volume 7, Issue 1

Pages 11-22

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.

Copyright

© 2015 Mahmoud Abdelaziz Touny and Mohamed Abdelhameed Shehab. This is an open access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.