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Nonperforming Loans in the GCC Banking System and their Macroeconomic Effects
Author:
Mr. Raphael A Espinoza
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Mr. Ananthakrishnan Prasad
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Series:
IMF Working Papers
Volume/Issue:
Volume 2010: Issue 224
Language:
English
Publication Date:
01 Oct 2010
DOI:
https://doi.org/10.5089/9781455208890.001
ISBN:
9781455208890
ISSN:
1018-5941
Pages:
24
Keywords:
WP; bank; interest rate; NPL ratio; loan; GCC country; NPLs; macro-financial linkages; Gulf Cooperation Council; Stress-testing; banking system; GCC economy; bank Muscat SAOG; feedback effect; banks in the Gulf Cooperative Council; GCC countries data; balance sheet constraint; GCC region; Nonperforming loans; Credit; Commercial banks; Credit risk; Loans; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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According to a dynamic panel estimated over 1995 - 2008 on around 80 banks in the GCC region, the NPL ratio worsens as economic growth becomes lower and interest rates and risk aversion increase. Our model implies that the cumulative effect of macroeconomic shocks over a three year horizon is indeed large. Firm-specific factors related to risk-taking and efficiency are also related to future NPLs. The paper finally investigates the feedback effect of increasing NPLs on growth using a VAR model. According to the panel VAR, there could be a strong, albeit short-lived feedback effect from losses in banks’ balance sheets on economic activity, with a semi-elasticity of around 0.4.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund