Systematic and Unsystematic Determinants of Sectoral Risk Default Interconnectedness

Haithem Awijen, Younes Ben Zaied () and Ahmed Hunjra ()
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Younes Ben Zaied: EDC Paris Business School

Computational Economics, 2023, vol. 62, issue 2, No 4, 587 pages

Abstract: Abstract Assessing the financial stability of the banking industry, particularly in credit risk management, has become extremely crucial in times of uncertainty. Given that, this paper aims to investigate the determinants of the interconnectedness of sectoral credit risk default for developing countries. To that purpose, we employ a dynamic credit risk model that considers a variety of macroeconomic indicators, bank-specific variables, and household characteristics. Moreover, the SURE model is used to analyze empirical data. We find the connection between macroeconomic, bank-specific, and household characteristics, and sectoral default risk. The outcomes of macroeconomic factors demonstrate that few macroeconomic determinants significantly influence the sector’s default risk. The empirical results of household components reveal that educated households play a substantial role in decreasing sectoral loan defaults interconnectedness and vice versa. While for bank-specific characteristic, we find that greater bank profitability and specialization have substantially reduced loan defaults.

Keywords: Default risk; Bank loans; Credit risk; Regulation (search for similar items in EconPapers)
JEL-codes: C33 G1 G21 G28 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10614-022-10336-5

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