Loan quality determinants: evaluating the contribution of bank-specific variables, macroeconomic factors and firm level information
AbstractThis 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 04-2014.
Length: 21 pages
Date of creation: 18 Feb 2014
Date of revision:
Problem loan; Bank specific factors; Firm specific characteristics; Probit models; Ordered probit models;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-03-08 (All new papers)
- NEP-BAN-2014-03-08 (Banking)
- NEP-BEC-2014-03-08 (Business Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Allen N. Berger & Robert DeYoung, 1997.
"Problem loans and cost efficiency in commercial banks,"
Finance and Economics Discussion Series
1997-8, Board of Governors of the Federal Reserve System (U.S.).
- Berger, Allen N. & DeYoung, Robert, 1997. "Problem loans and cost efficiency in commercial banks," Journal of Banking & Finance, Elsevier, vol. 21(6), pages 849-870, June.
- Allen N. Berger & Robert DeYoung, 1995. "Problem Loans and Cost Efficiency in Commercial Banks," Center for Financial Institutions Working Papers 96-01, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2010.
"From Financial Crash to Debt Crisis,"
NBER Working Papers
15795, National Bureau of Economic Research, Inc.
- Jiri Podpiera & Laurent Weill, 2007.
"Bad Luck or Bad Management? Emerging Banking Market Experience,"
2007/5, Czech National Bank, Research Department.
- Podpiera, Jiri & Weill, Laurent, 2008. "Bad luck or bad management? Emerging banking market experience," Journal of Financial Stability, Elsevier, vol. 4(2), pages 135-148, June.
- Jirí Podpiera & Laurent Weill, 2008. "Bad luck or bad management? emerging banking market experience," ULB Institutional Repository 2013/14305, ULB -- Universite Libre de Bruxelles.
- Allen N. Berger & Gregory F. Udell, 2003.
"The institutional memory hypothesis and the procyclicality of bank lending behaviour,"
BIS Working Papers
125, Bank for International Settlements.
- Berger, Allen N. & Udell, Gregory F., 2004. "The institutional memory hypothesis and the procyclicality of bank lending behavior," Journal of Financial Intermediation, Elsevier, vol. 13(4), pages 458-495, October.
- Allen N. Berger & Gregory F. Udell, 2003. "The institutional memory hypothesis and the procyclicality of bank lending behavior," Finance and Economics Discussion Series 2003-02, Board of Governors of the Federal Reserve System (U.S.).
- Pederzoli, Chiara & Torricelli, Costanza, 2005. "Capital requirements and business cycle regimes: Forward-looking modelling of default probabilities," Journal of Banking & Finance, Elsevier, vol. 29(12), pages 3121-3140, December.
- Gabriel Jiménez & Jesús Saurina, 2006. "Credit Cycles, Credit Risk, and Prudential Regulation," International Journal of Central Banking, International Journal of Central Banking, vol. 2(2), May.
- Louzis, Dimitrios P. & Vouldis, Angelos T. & Metaxas, Vasilios L., 2012.
"Macroeconomic and bank-specific determinants of non-performing loans in Greece: A comparative study of mortgage, business and consumer loan portfolios,"
Journal of Banking & Finance,
Elsevier, vol. 36(4), pages 1012-1027.
- Dimitrios P. Louzis & Aggelos T. Vouldis & Vasilios L. Metaxas, 2010. "Macroeconomic and bank-specific determinants of non-performing loans in Greece: a comparative study of mortgage, business and consumer loan portfolios," Working Papers 118, Bank of Greece.
- Diana Bonfim, 2007.
"Credit Risk Drivers: Evaluating the Contribution of Firm Level Information and of Macroeconomic Dynamics,"
w200707, Banco de Portugal, Economics and Research Department.
- Diana Bonfim, 2006. "Credit Risk Drivers: Evaluating the Contribution of Firm Level Information and of Macroeconomic Dynamics," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
- Bonfim, Diana, 2009. "Credit risk drivers: Evaluating the contribution of firm level information and of macroeconomic dynamics," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 281-299, February.
- Rajan, Raghuram G, 1994. "Why Bank Credit Policies Fluctuate: A Theory and Some Evidence," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 399-441, May.
- A. Bhattacharjee & Higson, C. & Holly, S. & Kattuman, P., 2002.
"Macro Economic Instability and Business Exit: Determinants of Failures and Acquisitions of Large UK Firms,"
Cambridge Working Papers in Economics
0206, Faculty of Economics, University of Cambridge.
- Bhattacharje,e A. & C.Higson & S.Holly & P.Kattuman, 2002. "Macro Economic Instability and Business Exit: Determinants of Failures and Acquisitions of Large UK Firms," Royal Economic Society Annual Conference 2002 27, Royal Economic Society.
- Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, vol. 23(4), pages 589-609, 09.
- Vicente Salas & Jesús Saurina, 2002. "Credit Risk in Two Institutional Regimes: Spanish Commercial and Savings Banks," Journal of Financial Services Research, Springer, vol. 22(3), pages 203-224, December.
- Kevin J. Stiroh, 2002.
"Diversification in banking: is noninterest income the answer?,"
154, Federal Reserve Bank of New York.
- Stiroh, Kevin J, 2004. "Diversification in Banking: Is Noninterest Income the Answer?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(5), pages 853-82, October.
- Philip Bunn & Victoria Redwood, 2003. "Company accounts based modelling of business failures and the implications for financial stability," Bank of England working papers 210, Bank of England.
- Shehzad, Choudhry Tanveer & de Haan, Jakob & Scholtens, Bert, 2010. "The impact of bank ownership concentration on impaired loans and capital adequacy," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 399-408, February.
- Philip Lowe, 2002. "Credit risk measurement and procyclicality," BIS Working Papers 116, Bank for International Settlements.
- Gabriel Jiménez & Jesús Saurina, 2004. "Collateral, type of lender and relationship banking as determinants of credit risk," Banco de Espaï¿½a Working Papers 0414, Banco de Espa�a.
- Jimenez, Gabriel & Saurina, Jesus, 2004. "Collateral, type of lender and relationship banking as determinants of credit risk," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2191-2212, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Johannes Eugster).
If references are entirely missing, you can add them using this form.