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

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  • Faiçal Belaid

    (Central Bank of Tunisia)

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    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.

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    File URL: http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIDWP04-2014.pdf
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    Bibliographic Info

    Paper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 04-2014.

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    Length: 21 pages
    Date of creation: 18 Feb 2014
    Date of revision:
    Handle: RePEc:gii:giihei:heidwp04-2014

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    Related research

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

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