Macro-Financial Linkages in Egypt: A Panel Analysis of Economic Shocks and Loan Portfolio Quality
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Summary:
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.
Series:
Working Paper No. 2013/271
Subject:
Balance of payments Banking Capital account Commercial banks Financial institutions Foreign banks Loans Macroeconomic risks Public financial management (PFM)
English
Publication Date:
December 30, 2013
ISBN/ISSN:
9781484338315/1018-5941
Stock No:
WPIEA2013271
Pages:
40
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