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Nonperforming loans in the GCC banking sectors: Does the Islamic finance matter?

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  • Alandejani, Maha
  • Asutay, Mehmet

Abstract

This paper investigates the bank-level and country-level factors determining nonperforming loans (NPL) in the commercial banking industry of Gulf Cooperation Council (GCC) countries. Specifically; it examines the impact of the sectoral distribution financing growth and Islamic finance methods growth on NPL. To do so, we apply generalized method of moments (GMM) techniques, over the 2005–2011 period. Our findings indicate that the sectoral distribution of Islamic financing has an adverse impact on NPL, which suggest that the sectoral financing growth of Islamic banks increases the credit risk exposure more than conventional banks. The findings of the Islamic finance methods growth show that the impact of fixed-income debt contracts could increase NPL more than profit-and-loss-sharing contracts.

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  • Alandejani, Maha & Asutay, Mehmet, 2017. "Nonperforming loans in the GCC banking sectors: Does the Islamic finance matter?," Research in International Business and Finance, Elsevier, vol. 42(C), pages 832-854.
    • Handle: RePEc:eee:riibaf:v:42:y:2017:i:c:p:832-854
    DOI: 10.1016/j.ribaf.2017.07.020
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    3. Faridah Najuna Misman & M. Ishaq Bhatti, 2020. "The Determinants of Credit Risk: An Evidence from ASEAN and GCC Islamic Banks," JRFM, MDPI, vol. 13(5), pages 1-22, May.
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    5. Warninda, Titi Dewi & Ekaputra, Irwan Adi & Rokhim, Rofikoh, 2019. "Do Mudarabah and Musharakah financing impact Islamic Bank credit risk differently?," Research in International Business and Finance, Elsevier, vol. 49(C), pages 166-175.
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    7. Dimitrios Anastasiou & Zacharias Bragoudakis & Ioannis Malandrakis, 2019. "Non-performing loans, governance indicators and systemic liquidity risk: evidence from Greece," Working Papers 260, Bank of Greece.
    8. Faten Ben Bouheni & Hassan Obeid & Elena Margarint, 2022. "Nonperforming loan of European Islamic banks over the economic cycle," Annals of Operations Research, Springer, vol. 313(2), pages 773-808, June.
    9. Mustafa Tevfik Kartal & Derviş Kirikkaleli & Fatih Ayhan, 2023. "Nexus between non‐performing loans and economic growth in emerging countries: Evidence from Turkey with wavelet coherence approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1250-1260, April.
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