Macro-Financial Linkages in Egypt: A Panel Analysis of Economic Shocks and Loan Portfolio Quality

Inessa Love and Rima Turk Ariss

No 2013/271, IMF Working Papers from International Monetary Fund

Abstract: This paper investigates macro-financial linkages in Egypt using two complementary methods, assessing the interaction between different macroeconomic aggregates and loan portfolio quality in a multivariate framework as well as through a panel vector autoregressive method that controls for bank-level characteristics. Using a panel of banks over 1993-2010, the authors find that a positive shock to capital inflows and growth in gross domestic product improves banks’ loan portfolio quality, and that the effect is fairly similar in magnitude using the multivariate and panel vector autoregressive frameworks. In contrast, higher lending rates may lead to adverse selection problems and hence to a drop in portfolio quality. The paper also reports that a larger market share of foreign banks in the industry improves loan quality.

Keywords: WP; portfolio quality; loan growth; loan quality; portfolio composition; bank activity; bank privatization; bank risk-taking; growth response; loan reserve; portfolio manipulation; PVAR framework bank-level indicators; Macroeconomic Shocks; Banks; Panel Vector Autoregression; market share; Loans; Foreign banks; Commercial banks; Macroeconomic risks; Capital account (search for similar items in EconPapers)
Pages: 40
Date: 2013-12-30
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Macro-financial linkages in Egypt: A panel analysis of economic shocks and loan portfolio quality (2014)
Working Paper: Macro-Financial Linkages in Egypt: A Panel Analysis of Economic Shocks and Loan Portfolio Quality (2013)
Working Paper: Macro-Financial Linkages in Egypt: A Panel Analysis of Economic Shocks and Loan Portfolio Quality (2013)
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