Non-Performing Loans in the ECCU: Determinants and Macroeconomic Impact
IMF Working Papers, November 17, 2016
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- Non-Performing Loans in the ECCU: Determinants and Macroeconomic Impact
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Bibliographic details
- Authors: Kimberly Beaton, Alla Myrvoda, Shernnel Thompson
- Published: November 17, 2016
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475555714.001
Publication metadata
- Authors: Kimberly Beaton, Alla Myrvoda, Shernnel Thompson
- Date: November 17, 2016
- Series: Working Paper No. 2016/229
- Issue: 229
- Volume: 2016
- Pages: 33
- DOI: https://doi.org/10.5089/9781475555714.001
- ISBN: 9781475555714
- ISSN: 1018-5941
Research objective
- Assess the determinants of non-performing loans (NPLs) in the Eastern Caribbean Currency Union (ECCU).
- Evaluate whether a deterioration in asset quality may result in negative feedback effects from the banking system to economic activity.
Key findings
- Deterioration in asset quality can be attributed to both macroeconomic and bank-specific factors.
- Banks with stronger profitability tend to have lower NPLs.
- Lower exposure to the construction sector and household loans is associated with lower NPLs.
- Some evidence indicates that foreign owned banks systematically have lower NPLs than domestic banks, suggesting differences in bank practices that impact asset quality.
- The results emphasize the strength of macrofinancial feedback loops in the ECCU.
Determinants of NPLs (as reported)
- Macroeconomic factors: linked to deterioration in asset quality and to macrofinancial feedback effects on real activity.
- Bank-specific factors:
- Profitability (stronger profitability → lower NPLs).
- Loan portfolio composition (higher exposure to construction sector and household loans → higher NPLs).
- Ownership structure (foreign owned banks tend to have lower NPLs than domestic banks).
Macroeconomic impact and feedback effects
- Evidence points to negative feedback effects from banking-sector asset-quality deterioration to economic activity.
- The study emphasizes the strength of macrofinancial feedback loops in the ECCU, indicating that worsening bank asset quality can transmit to broader economic outcomes.
Subject classifications and keywords
- 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
IMF Working Papers. Non-Performing Loans in the ECCU: Determinants and Macroeconomic Impact, Kimberly Beaton, Alla Myrvoda, and Shernnel Thompson, November 17, 2016.
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- Non-Performing Loans in the ECCU: Determinants and Macroeconomic Impact