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Macro-Financial Linkages in Egypt: A Panel Analysis of Economic Shocks and Loan Portfolio Quality

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  • Inessa Love
  • Rima Turk Ariss

Abstract

This paper investigates macro-financial linkages in Egypt using two complementary methods, assessing the interaction between different macroeconomic aggregates and loan portfolio quality in a multivariate framework as well as through a panel vector autoregressive method that controls for bank-level characteristics. Using a panel of banks over 1993-2010, the authors find that a positive shock to capital inflows and growth in gross domestic product improves banks’ loan portfolio quality, and that the effect is fairly similar in magnitude using the multivariate and panel vector autoregressive frameworks. In contrast, higher lending rates may lead to adverse selection problems and hence to a drop in portfolio quality. The paper also reports that a larger market share of foreign banks in the industry improves loan quality.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/271.

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Length: 40
Date of creation: 30 Dec 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/271

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Keywords: Banking sector; Egypt; Loans; External shocks; Credit risk; Economic models; Macroeconomic Shocks; Banks; Loan Quality; Panel Vector Autoregression; loan portfolio quality; banks ’ loan; banks ’ balance sheets; banking system; bank activities; bank assets; bank profitability; banking crisis; prudential regulation; banks loan; national bank; banking crises; banking panics; bank ownership; bank capital; var model; bank weaknesses; bank reserves; banking systems; credit risk management; bank soundness; banking market; banks ’ loans; bank problems; bank risk; bank managers; bank risk-taking; problem bank; banking system fragility; bank credit; banking institutions; bank portfolio; bank privatization; state bank;

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