Assessing the determinants of non-performing loans under financial crisis and health crisis: evidence from the MENA banks

Abstract

The main objective of this paper is to investigate determinants of non-performing loans in the Middle East and North Africa region by exploring the role of bank-specific and macroeconomic factors, particularly in the period of the global financial crisis, as well as the COVID-19 pandemic, as a health crisis that translates to an economic crisis. This study includes 74 banks belonging to 11 MENA countries over the period 2005–2020 and uses the two-stage system generalized method of moment estimator. To conduct a comparative analysis, the whole sample is divided into two sub-samples. The first one is related to the Middle East countries and the second one covers North African countries. The empirical findings indicate that the level of non-performing loans is more sensitive to bank specifics than macroeconomic factors. When it comes to macroeconomic factors, macroeconomic environment and institutional quality significantly affect the level of NPLs. However, no significant effect has been detected regarding the impact of the COVID-19 pandemic.

Keywords:

• non-performing loans
• bank specifics
• macroeconomic factors
• global financial crisis
• COVID-19 pandemic

JEL codes:

• G01
• G21
• G32

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. As of January 2021, the UNICEF provides a classification of the MENA region that includes twenty countries, that is, Algeria, Bahrain, Djibouti, Egypt, Islamic Republic of Iran, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, State of Palestine, Sudan, Syrian Arab Republic, Tunisia, United Arab Emirates, and Yemen.

2. Data related to the growth rate of GDP and the inflation rate are collected from the World Bank Indicators during the period 2005–2020 through this link https://databank.worldbank.org/reports.aspx?source=world-development-indicators&preview=on#.

Additional information

Funding

The authors received no direct funding for this research.