Nonperforming Loans in the GCC Banking System and their Macroeconomic Effects

WPIEA2010224 Image
Price:  $18.00

Author/Editor: Raphael A Espinoza, Ananthakrishnan Prasad
Release Date: © October, 2010
ISBN : 978-1-45520-889-0
Stock #: WPIEA2010224
Stock Status: On back-order

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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.


Banks and banking , Cooperation Council for the Arab States of the Gulf , Economic cooperation , Financial institutions and markets , International organizations , Loans

More publications in this series: Working Papers

More publications by: Raphael A Espinoza ; Ananthakrishnan Prasad