Nonperforming Loans in the GCC Banking System and Their Macroeconomic Effects

By Raphael A. Espinoza, A. Prasad. Social Science Research Network, 2010

476 citations recorded by the source corpus.

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 '34.

Subfields: Finance, Information Systems

View Paper: https://www.semanticscholar.org/paper/fb0fb15d1e9c15ed0898e04c5945df9dd8cd1866

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Citations in the corpus

Determinants of Non-Performing Loans: The Case of Eurozone (2014, background): “Several studies examined the determinants of NPLs and problem loans (e.g. Santiago Fernandez de Lis, Jorge Martinez Pagés, and Jesus Saurina 2000; Abdel-kader Boudriga, Neila Taktak, and Sana Jellouli 2009a; Raphael A. Espinoza and Ananthakrishnan Prasad 2010).”
Non-Performing Loans: What Matters in Addition to the Economic Cycle? (2013, unknown): “According to Espinoza and Prasad (2010), who estimate a dynamic panel over 1995-2008 on around 80 banks in the Gulf Cooperation Council, lower economic growth and higher interest rates trigger an increase in NPLs.”
Macroeconomic and Institutional Determinants of Non-performing Loans (2015, background): “According to Espinoza & Prasad (2010), who estimated a dynamic panel over 1995–2008 on a sample of around 80 banks of the Gulf Cooperation Council region, NPL ratio rises as economic growth becomes lower and interest rates increase.”
Economic Determinants of Non-Performing Loans: Perception of Pakistani Bankers (2012, background): “Espinoza and Prasad (2010) examined the macroeconomic determinants of non-performing loans in the GCC banking system according to them high interest rates increases loan defaults but they did not find statistically significant relationship.”
Non-performing loans and financial development: new evidence (2019, methodology): “For instance, Espinoza and Prasad (2010) investigate 80 banks from the Gulf Cooperation Council (GCC) region and employ the VIX proxy to control for global financial volatility and risk aversion.”
Banking-industry specific and regional economic determinants of non-performing loans: Evidence from US states (2015, background): “…for the period 2000–2010, and find real GDP, nominal effective exchange rates, share prices and real lending rates to significantly affect NPLs. Espinoza and Prasad (2010) use a panel dataset from 1995 to 2008 for 80 banks in the Gulf Co-operation Council region and find NPLs to worsen as…”
Determinants of non-performing loans in Central and Eastern European countries (2014, unknown): “2.2 panel analyses The Espinoza and Prasad (2010) study on the determinants of NPLs in the Gulf Cooperation Council (GCC) banking sector is one of the first examples of regional empirical research on the topic.”
Micro and Macro Determinants of Non-performing Loan (2013, background): “…into three parts: The first part of the literature has focused on explaining the NPL in credit institutions in the country demonstrating the role of macroeconomic performance, quality of management and political choices (Dash and Kabra, 2010; Espinoza and Prasad, 2010; Louzis et al, 2010).”