Non-Performing Loans in the ECCU: Determinants and Macroeconomic Impact
November 17, 2016
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Summary
This paper assesses the determinants of NPLs in the Eastern Caribbean Currency Union (ECCU) and whether a deterioration in asset quality may result in negative feedback effects from the banking system to economic activity. The results suggest that the deterioration in asset quality can be attributed to both macroeconomic and bank-specific factors. Banks with stronger profitability and lower exposure to the construction sector and household loans tend to have lower NPLs. Further, some evidence indicates that foreign owned banks systematically have lower NPLs than domestic banks, pointing to the presence of important differences across bank practices with an impact on asset quality. Finally, the results emphasize the strength of macrofinancial feedback loops in the ECCU.
Subject: Banking, Commercial banks, Credit, Financial institutions, Foreign banks, Loans, Money, Nonperforming loans
Keywords: asset quality, bank asset quality, Caribbean, Commercial banks, coverage data sets, Credit, credit growth, dummy variable, economic activity, feedback effects, force bank, Foreign banks, Global, Loans, Macrofinancial linkages, non-performing loans, Nonperforming loans, NPL ratio, ownership structure, real GDP, resolution process, return on assets, WP
Pages:
33
Volume:
2016
DOI:
Issue:
229
Series:
Working Paper No. 2016/229
Stock No:
WPIEA2016229
ISBN:
9781475555714
ISSN:
1018-5941
