The Impact of the Over-indebtedness of the Household Sector on the Non-performing Loans in the Banking Sector in the Arab Countries

The paper examined the potential relationship between household credit risk and its impact on the non-performing loans ratio (NPLs), in ten Arab countries during the period (2015-2020), using the difference Generalized Method of Moments (GMM), the household credit was measured through the household loans to total credit ratio, in a manner that takes into account the existence of prudential tools that mitigate these risks and limit the systemic risks that may arise from this sector, as variables were used that measure the effect of activating or tightening the Debt-to-Income ratio (DTI) and the Loan to the Value ratio (LTV). The results showed that the increase in the household loans to the total loans ratio has a positive relationship with the bank default rate (NPLs ratio), and the results also showed that the macroprudential policy tools play an important role in reducing these risks. While there was a negative relationship between the rate of return on assets (ROA) and the size of the bank on the one hand, and the default rate on the other. While there was no statistically significant relationship between the interbank interest rate and the default rate, as well as the inflation rate, but regarding the real gross domestic product (GDP) growth rate, the results showed a negative relationship between this variable and credit risk. The paper recommended the need to enhance responsible finance, and the deliberate appetite for lending to individuals based on customer risks, and to benefit from the credit database of credit bureaus or credit information companies to rationalize credit and grant loans based on customer risks.