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

Figures & data

Table 1. Definitions and measurements of the variables

Variables	Definition	Measurement
Dependent variables
NPLs	Nonperforming loans	Bank nonperforming loans to gross loans
Bank specifics
ROA	Return on assets	Net income/total asset
ROE	Return on equity	Net income/total equity
BS	Bank size	Natural logarithm of total assets
CAR	Capital adequacy ratio	Equity to total assets
LTD	Liquidity risk	Loans to deposit ratio
LLP	Loan loss provisions	Loan loss provisions in % of total loans
NII	Non-interest income	Non-interest income in % of total income
Industry specifics
CONC	Bank concentration	Bank concentration (%)
LERN	Bank competition	The Lerner index
Macroeconomic specifics
GDPG	Growth rate of GDP	The annual growth of GDP
INF	Inflation rate	Inflation, consumer prices
UNEM	Unemployment rate	Unemployment, total (% of total labor force)
Financial environment
CRISIS	Global financial crisis	Dummy variable that takes 0 before 2008 and 1 otherwise
Institutional quality
CCOR	Control of corruption	Score that ranges between −2.5 and 2.5 (World Bank database)
POLIS	Political stability	Score that ranges between −2.5 and 2.5 (World Bank database)
RUL	Rule of law	Score that ranges between −2.5 and 2.5 (World Bank database)
COVID-19 pandemic
CASES	Number of active cases	The natural logarithm of active cases
DEATHS	Number of fatalities	The natural logarithm of deaths

Table 2. Descriptive statistics

Variable	Mean	Std. dev.	Min.	Max.
NPLs	8.10	7.61	0.01	58.13
ROA	1.93	3.41	−10.30	101.43
ROE	13.66	12.98	−135.90	59.30
CAR	14.98	5.10	1.26	40.35
BS	9.84	2.61	5.05	18.08
LTD	81.92	27.63	1.44	215.32
LLP	1.30	1.67	0.01	19.91
NII	35.84	17.26	2.00	96.00
CONC	68.85	19.15	40.22	100.00
LERN	0.42	0.11	0.10	0.62
GDPG	3.25	4.40	−21.46	26.17
INF	3.84	6.24	−4.86	84.86
UNEM	7.64	5.46	0.11	18.50
CRISIS	0.81	0.39	0	1
CCOR	0.18	0.58	−1.15	1.57
POLIS	−0.17	0.76	−2.12	1.22
RUL	0.22	0.39	−0.90	1.00
CASES	1.05	4.06	0	17.99
DEATHS	0.76	2.95	0	13.94

Table 3. Variance inflation factors (VIFs)

Whole sample			Middle East			North Africa
Variable	VIF	1/VIF	Variable	VIF	1/VIF	Variable	VIF	1/VIF
POLIS	4.35	0.23	POLIS	4.52	0.22	CONC	4.22	0.24
CCOR	4.20	0.24	CCOR	3.89	0.26	BS	4.18	0.24
UNEM	3.12	0.32	BS	2.81	0.36	UNEM	4.07	0.25
BS	2.35	0.42	CONC	2.57	0.39	POLIS	3.76	0.27
LTD	2.18	0.46	UNEM	2.36	0.42	CCOR	3.47	0.29
LERN	2.08	0.48	LERN	2.22	0.45	LERN	3.39	0.29
CONC	1.82	0.55	LTD	2.15	0.46	INF	3.28	0.30
CRISIS	1.44	0.69	CRISIS	1.53	0.65	GDPG	3.11	0.32
CAR	1.43	0.70	ROE	1.48	0.68	LTD	2.90	0.35
NII	1.26	0.79	LLP	1.45	0.69	CRISIS	2.41	0.42
INF	1.23	0.81	GDPG	1.35	0.74	NII	1.46	0.68
GDPG	1.21	0.83	NII	1.34	0.75	CAR	1.36	0.74
ROE	1.17	0.86	INF	1.19	0.84	ROE	1.33	0.75
LLP	1.16	0.87	CAR	1.15	0.87	LLP	1.22	0.82
Mean VIF	2.07		Mean VIF	2.14		Mean VIF	2.87

Table 4. Empirical results of the NPL determinants—whole sample

	Model (1)		Model (2)		Model (3)
NPLs	Coef.	Z	Coef.	Z	Coef.	Z
NPLs (−1)	0.817	91.600***	0.778	56.180***	0.770	77.370***
ROA	−0.046	−3.420***	−0.032	−2.050**	−0.051	−2.640***
ROE	−0.003	−2.490**	−0.003	−2.470**	−0.001	−0.240
BS	0.317	2.670***	0.353	2.150**	0.357	2.240**
CAR	−0.027	−3.240***	−0.028	−1.170	−0.023	−1.340
LTD	−0.029	−31.540***	−0.025	−17.500***	−0.022	−7.830***
LLP	0.123	6.260***	0.107	3.610***	0.121	3.420***
NII	1.154	10.460***	1.053	6.040***	1.011	7.340***
CONC	−0.068	−14.840***	−0.034	−3.850***	−0.049	−4.700***
LERN	6.118	3.250***	5.564	2.920***	−2.549	−0.860
CRISIS			−0.589	−5.180***	−0.790	−3.340***
GDPG			0.039	3.100***	−0.012	−0.520
INF			0.143	6.710***	0.103	2.480***
UNEM			0.100	4.470***	0.150	2.480***
CCOR					−4.012	−9.840***
POLIS					1.159	3.330***
RUL					−6.370	−6.470***
_cons	5.858	4.210***	2.473	1.120	12.287	6.740***
AR(1)	−3.229		−3.199		−3.157
Prob.	(0.001)		(0.001)		(0.001)
AR(2)	−0.811		−1.617		−1.424
Prob.	(0.417)		(0.105)		(0.154)
Sargan test	43.275		39.330		31.107
Prob.	(0.459)		(0.631)		(0.911)
Obs.	924		924		924

Note: NPLs (−1) means lagged NPLs with a lag of one period.

*** and ** indicate the level of significance at 1% and 5%, respectively.

Table 5. Empirical result of the NPL determinants—the Middle East countries

	Model (1)		Model (2)		Model (3)
NPLs	Coef.	Z	Coef.	Z	Coef.	Z
NPLs (−1)	0.488	10.790***	0.432	20.120***	0.505	7.590***
ROA	−0.732	−4.520***	−1.354	−6.810***	1.180	1.770
ROE	−0.193	−7.020***	−0.265	−6.730***	−0.221	−2.070**
BS	0.579	1.470	0.786	1.570	1.217	1.230
CAR	−0.122	−4.370***	−0.146	−4.910***	−0.113	−3.870***
LTD	−0.018	−1.760*	−0.043	−3.730***	−0.037	−2.840***
LLP	0.415	6.060***	0.404	3.700***	0.074	0.600
NII	−0.912	−4.080***	−0.799	−2.130**	−1.712	−4.350***
CONC	0.122	2.270**	0.250	4.040***	0.366	4.240***
LERN	−11.249	−7.520***	−9.983	−5.850***	7.163	1.010
CRISIS			4.016	6.070***	4.261	4.600***
GDPG			0.158	5.420***	0.065	3.290***
INF			0.006	0.230	0.036	0.620
UNEM			−0.259	−0.710	−0.010	−0.050
CCOR					−6.334	−6.690***
POLIS					1.552	3.080***
RUL					−5.190	−4.790***
_cons	−14.076	−2.060	−28.128	−3.050	−41.904	−2.950
AR(1)	−1.985		−2.179		−2.391
Prob	(0.047)		(0.029)		(0.016)
AR(2)	−1.400		−0.730		−0.0218
Prob	(0.161)		(0.161)		(0.826)
Sargan test	29.170		22.843		23.279
Prob	(0.947)		(0.995)		(0.993)
Obs	687		687		687

Note: NPLs (−1) means lagged NPLs with a lag of one period.

*** and ** indicate the level of significance at 1% and 5%, respectively.

Table 6. Empirical results of the NPL determinants—North African countries

	Model (1)		Model (2)		Model (3)
NPLs	Coef.	Z	Coef.	Z	Coef.	z
NPLs (−1)	0.878	15.170***	0.853	11.660***	0.581	0.650
ROA	−0.244	−1.070	0.017	0.440	−3.801	−2.860***
ROE	−0.007	−0.340	−0.003	−0.170	−0.130	−1.870*
BS	0.986	1.180	−2.925	−2.180**	0.447	0.070
CAR	0.319	1.760*	−0.047	−0.300	0.522	2.080**
LTD	−0.035	−4.670***	−0.032	−3.370***	0.033	0.780
LLP	−0.105	−0.750	0.033	0.150	2.878	1.150
NII	1.917	2.070**	1.265	1.200	−12.326	−1.290
CONC	−0.619	−2.440**	−0.013	−0.060	−5.724	−2.140**
LERN	−3.497	−1.610	1.905	1.740*	7.323	2.510**
CRISIS			0.332	0.260	4.339	0.610
GDPG			0.084	0.310	−1.564	−1.000
INF			0.182	1.760*	0.367	0.260
UNEM			0.625	2.420**	3.560	1.510
CCOR					−2.776	−0.560
POLIS					−4.492	−3.440***
RUL					−16.964	−3.440***
_cons	30.428	1.630	18.267	1.370	0.008	0.290
AR(1)	−0.586		−0.316		−0.248
Prob.	(0.557)		(0.751)		(0.803)
AR(2)	−0.048		0.956		0.717
Prob.	(0.961)		(0.338)		(0.473)
Sargan test	1.901		3.135		2.405
Prob.	(0.999)		(1.000)		(1.000)
Obs.	288		288		288

Note: NPLs (−1) means lagged NPLs with a lag of one period.

***, ** and * indicate the level of significance at 1%, 5%, and 10%, respectively.

Table 7. Empirical results of the effect of the COVID-19 pandemic

	Whole sample		Middle East		North Africa
NPLs	Coef.	Z	Coef.	Z	Coef.	Z
NPLs (−1)	0.753	45.230***	0.390	4.160***	1.015	11.090***
ROA	0.160	6.810***	−0.775	−3.000***	−0.814	−20.480***
ROE	−0.002	−0.450	−0.159	−3.250***	0.057	1.550
BS	1.511	2.870***	−1.881	−1.480	−0.026	−1.540
CAR	−0.031	−1.410	−0.049	−1.420	−4.328	−4.620***
LTD	−0.009	−4.520***	−0.017	−0.820	0.273	1.930*
LLP	0.063	1.610	0.191	1.090	−0.030	−0.140
NII	−0.088	−0.430	−0.833	−1.680*	2.730	2.450**
CONC	−0.435	−8.620***	0.549	7.350***	−2.724	−3.170***
LERN	−4.525	−1.410	0.604	0.070	4.323	2.130**
CRISIS	0.283	0.970	5.735	5.800***	−1.472	−1.360
GDPG	−0.072	−2.430***	0.023	0.730	0.133	0.630
INF	0.104	1.990**	0.028	0.500	−0.140	−1.360
UNEM	0.435	6.530***	0.130	0.400	−0.494	−1.480
CCOR	−7.042	−10.070***	4.653	3.250***	−21.163	−0.400
POLIS	−0.782	−1.490	0.326	0.420	4.940	1.330
RUL	−3.072	−2.480***	−0.110	−0.060	−84.463	−1.190
CASES	1.160	1.300	0.425	0.580	6.744	0.930
DEATHS	−1.562	−1.260	−0.653	−0.630	−8.501	−0.940
_cons	8.142	27.250***	−25.829	−1.670	16.461	3.680***
AR(1)	−3.215		−2.025		−0.228
Prob.	(0.001)		(0.042)		(0.818)
AR(2)	−0.211		−0.397		0.866
Prob.	(0.832)		(0.690)		(0.386)
Sargan test	30.02		18.916		3.565
Prob.	(0.707)		(0.987)		(1.000)
Obs.	924		687		288

Note: NPLs (−1) means lagged NPLs with a lag of one period.

***, ** and * indicate the level of significance at 1%, 5%, and 10%, respectively.

Table

	Middle East	North Africa
Countries	Number of banks	Countries	Number of banks
Bahrain	4	Egypt	4
Jordan	13	Morocco	4
Kuwait	5	Tunisia	10
Lebanon	4
Oman	4
Qatar	4
Saudi Arabia	8
United Arab Emirates	14
Number of banks	56	Number of banks	18

Table

	ROA	ROE	BS	CAR	LTD	LLP	NII	CONC	LERN	GDPG	INF	UNEM	CRISIS	CCOR	POLIS	RUL	CASES	DEATHS
ROA	1.0000
ROE	0.3520*	1.0000
	0.0000
BS	−0.0394	0.1296*	1.0000
	0.1814	0.0000
CAR	0.0258	0.1370*	0.0594	1.0000
	0.4411	0.0000	0.0760
LTD	−0.0320	−0.1218*	−0.3184*	−0.4646*	1.0000
	0.2809	0.0000	0.0000	0.0000
LLP	−0.1967*	−0.4288*	0.0308	−0.1315*	0.0746*	1.0000
	0.0000	0.0000	0.3120	0.0001	0.0144
NII	−0.0647*	−0.2167*	−0.2455*	−0.2883*	0.5042*	0.1837*	1.0000
	0.0301	0.0000	0.0000	0.0000	0.0000	0.0000
CONC	0.0579*	0.0178	−0.2007*	0.1092*	−0.1675*	0.0066	−0.1333*	1.0000
	0.0495	0.5468	0.0000	0.0011	0.0000	0.8281	0.0000
LERN	0.1199*	−0.0727	−0.2003*	0.1935*	−0.0510	0.0871*	0.0502	0.1065*	1.0000
	0.0016	0.0559	0.0000	0.0000	0.1831	0.0247	0.1914	0.0050
GDPG	0.1121*	0.2557*	−0.0866*	0.0201	−0.1043*	−0.3146*	−0.1473*	0.0102	−0.0340	1.0000
	0.0001	0.0000	0.0033	0.5483	0.0004	0.0000	0.0000	0.7287	0.3708
INF	0.0090	0.0410	0.0856*	−0.1404*	0.0402	0.2881*	−0.0306	0.1158*	−0.2788*	−0.1087*	1.0000
	0.7664	0.1751	0.0046	0.0000	0.1858	0.0000	0.3179	0.0001	0.0000	0.0003
UNEM	0.0365	0.0313	−0.3204*	−0.2922*	0.4477*	−0.0051	0.3121*	−0.1103*	−0.3485*	−0.1434*	0.0977*	1.0000
	0.2164	0.2880	0.0000	0.0000	0.0000	0.8680	0.0000	0.0002	0.0000	0.0000	0.0012
CRISIS	−0.1095*	−0.2170*	0.1237*	−0.0105	0.0155	0.1276*	0.0717*	0.0753*	0.1381*	−0.3644*	−0.0289	0.0155	1.0000
	0.0002	0.0000	0.0000	0.7529	0.6017	0.0000	0.0164	0.0105	0.0003	0.0000	0.3383	0.5995
CCOR	0.0304	−0.0926*	−0.2042*	0.2622*	−0.2062*	−0.0099	−0.0699*	0.0690*	0.5583*	0.1523*	−0.2633*	−0.4814*	0.0100	1.0000
	0.3026	0.0017	0.0000	0.0000	0.0000	0.7455	0.0192	0.0192	0.0000	0.0000	0.0000	0.0000	0.7350
POLIS	−0.0166	−0.1039*	−0.2616*	0.1525*	−0.1196*	−0.0047	−0.0436	0.0409	0.5568*	0.1819*	−0.2336*	−0.5477*	−0.1230*	0.3296*	1.0000
	0.5742	0.0004	0.0000	0.0000	0.0001	0.8765	0.1446	0.1655	0.0000	0.0000	0.0000	0.0000	0.0000	0.0000
RUL	−0.0077	−0.1725*	−0.3921*	0.2760*	−0.1798*	−0.0346	−0.0573	0.2862*	0.5825*	0.1305*	−0.2998*	−0.4456*	0.0270	0.4696*	0.4898*	1.0000
	0.7949	0.0000	0.0000	0.0000	0.0000	0.2559	0.0549	0.0001	0.0003	0.0012	0.0000	0.0000	0.3599	0.0000	0.0000
CASES	−0.0893*	−0.1633*	0.0560	0.0417	−0.0211	0.1860*	0.1145*	0.1028*	0.2557*	−0.5164*	0.0730*	0.1113*	0.1240*	−0.0120	−0.0233	0.0614*	1.0000
	0.0024	0.0000	0.0576	0.2124	0.4759	0.0000	0.0001	0.0005	0.0000	0.0000	0.0156	0.0002	0.0000	0.6842	0.4285	0.0372
DEATHS	−0.0865*	−0.1563*	0.0539	0.0378	−0.0158	0.1826*	0.1117*	0.1028*	0.0410	−0.5110*	0.0748*	0.1217*	0.1237*	−0.0222	−0.0331	0.0479	0.4975*	1.0000
	0.0033	0.0000	0.0673	0.2592	0.5942	0.0000	0.0002	0.0005	0.0000	0.0000	0.0131	0.0000	0.0000	0.4513	0.2615	0.1042	0.0000