The crucial macroeconomic and microeconomic determinants of retail and corporate credit risks

Abstract

PURPOSE: In early 2018, the corporate non-performing loan ratio began to climb steadily, showing some threats to the financial health of the Egyptian banking system. Therefore, the determinants of corporate and retail credit risks in the banking sector of Egypt during 2013-2020 were studied in the present work to provide better insight into how the macroeconomic and microeconomic determinants affect the level of credit risks.

METHODOLOGY: The present research utilized the Dickey-Fuller test to assess the stationarity of the panel data and then employed the generalized method of moments (GMM) for data analysis.

FINDINGS: It was found that asset size, loans-to-deposits, inflation, gross domestic product (GDP), and lending interest rate were negatively associated with the corporate credit risk, while the capital adequacy ratio, foreign direct investment (FDI), and public debt were positively related. Moreover, the loans-to-deposits ratio was negatively associated with retail credit risk, while the capital adequacy ratio was positively related.

ORIGINALITY/VALUE: In this context, classifying the credit risk into corporate and retail credit risk was very crucial as it illustrated that the corporate credit risk was more sensitive to the determinants than the retail ones.