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Loan quality determinants: evaluating the contribution of bank-specific variables, macroeconomic factors and firm level information

Author

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  • Faiçal Belaid

    (Central Bank of Tunisia)

Abstract
This paper uses probit and ordered probit methods to examine the impact of banks’ policies in terms of cost efficiency, capitalization, activity diversification, credit growth and profitability, on the loan quality in the Tunisian banking sector after controlling for the effects of firm-specific characteristics and macroeconomic conditions. Using a data set with detailed information for more than 9 000 firms comprising the portfolios of the ten largest Tunisian banks, we show that banks which are cost inefficient, low capitalized, diversified and small, are more likely to have a low quality of loans portfolios. However, bank’s profitability does not seem to offer an important contribution in explaining the loan quality evolution. Finally, our findings highlight the importance of taking into account firm-specific characteristics and macroeconomic developments when assessing the loan quality of banks from a financial stability perspective.

Suggested Citation

  • Faiçal Belaid, 2014. "Loan quality determinants: evaluating the contribution of bank-specific variables, macroeconomic factors and firm level information," IHEID Working Papers 04-2014, Economics Section, The Graduate Institute of International Studies.
    • Handle: RePEc:gii:giihei:heidwp04-2014
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    References listed on IDEAS

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    Cited by:

    1. Katuka, Blessing, 2017. "Credit risk dynamics in listed local banks in Zimbabwe (2009-2013)," MPRA Paper 92687, University Library of Munich, Germany, revised 2017.
    2. Kang, Kee-Youn & Jang, Inkee, 2020. "Dynamic Adverse Selection and Belief Update in Credit Markets," MPRA Paper 99071, University Library of Munich, Germany.
    3. Katuka, Blessing & Dzingirai, Canicio, 2015. "Micro and Macro Drivers of Credit Risk: The Case of Zimbabwean Banking Industry (2009-2013)," MPRA Paper 92688, University Library of Munich, Germany, revised 2018.

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    Keywords

    Problem loan; Bank specific factors; Firm specific characteristics; Probit models; Ordered probit models;
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