IMF Working Papers

Financial Stability in a Higher-for-Longer Interest Rate Environment The Case of the Middle East and North Africa

Author/Editor:

Adrian Alter ; Bashar Hlayhel ; Thomas Kroen ; Thomas Piontek

Publication Date:

April 5, 2024

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Summary:

This paper assesses the state and resilience of corporate and banking sectors in the Middle East and North Africa (MENA) in a “higher-for-longer” interest rate environment using granular micro data to conduct the first cross-country corporate and banking sector stress tests for the MENA region. The results suggest that corporate sector debt at risk may increase sizably from 12 to 30 percent of total corporate debt. Banking systems would be broadly resilient in an adverse scenario featuring higher interest rates, corporate sector stress, and rising liquidity pressures with Tier-1 capital ratios declining by 2.3 percentage points in the Gulf Cooperation Council (GCC) countries and 4.0 percentage points in non-GCC MENA countries. In the cross-section of banks, there are pockets of vulnerabilities as banks with higher ex-ante vulnerabilities and state-owned banks suffer greater losses. While manageable, the capital losses in the adverse scenario could limit lending and adversely impact growth.

Series:

Working Paper No. 2024/080

Subject:

Capital adequacy requirements Commercial banks Corporate sector Credit Economic sectors Financial crises Financial institutions Financial regulation and supervision Financial sector policy and analysis Money Stress testing

Frequency:

regular