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Nonperforming loans in the GCC banking sectors: Does the Islamic finance matter?

Maha Alandejani and Mehmet Asutay

Research in International Business and Finance, 2017, vol. 42, issue C, 832-854

Abstract: This paper investigates the bank-level and country-level factors determining nonperforming loans (NPL) in the commercial banking industry of Gulf Cooperation Council (GCC) countries. Specifically; it examines the impact of the sectoral distribution financing growth and Islamic finance methods growth on NPL. To do so, we apply generalized method of moments (GMM) techniques, over the 2005–2011 period. Our findings indicate that the sectoral distribution of Islamic financing has an adverse impact on NPL, which suggest that the sectoral financing growth of Islamic banks increases the credit risk exposure more than conventional banks. The findings of the Islamic finance methods growth show that the impact of fixed-income debt contracts could increase NPL more than profit-and-loss-sharing contracts.

Keywords: Nonperforming loans; Commercial banks; Islamic finance; Generalized method of moments; GCC countries (search for similar items in EconPapers)
Date: 2017
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