The sensitivity of bank credit risk indicators to macroeconomic variables
Date
2016
Authors
Thwala, Cyprian Mcwayizeni
Journal Title
Journal ISSN
Volume Title
Publisher
Abstract
This study uses a dynamic panel data method to examine the sensitivity of non-performing
loans (NPLs) and bank capital buffer (BCB) to macroeconomic variables. This approach is motivated by the hypothesis that says macroeconomic variables have an effect on the bank’s balance sheet, and this effect varies across developed and emerging economies.
The results show that NPLs are sensitive to GDP growth, interest rate, public debt, sovereign debt and unemployment in developed economies. However, NPLs are sensitive to GDP growth, exchange rate, interest rate, sovereign debt, unemployment and volume of imports in emerging economies. Public debt is not statistically significant in explaining the sensitivity of NPLs in emerging economies. Similarly, exchange rate and volume of imports have no significant influence on NPLs in developed economies.
In relation to the BCB we find GDP growth, exchange rate, interest rate, sovereign debt, unemployment and volume of imports as significant macroeconomic variables driving the sensitivity of capital buffer in emerging economies. Conversely, interest rate, sovereign debt and unemployment are macroeconomic variables responsible for the sensitivity of the buffer in developed economies. GDP growth, exchange rate and volume of imports have no significant influence.
Considering the liquidity risk imposed to the banks’ balance sheet by this set of macroeconomic variables. It seems plausible that their dynamics should be given attention when conceiving any policy mix to cope with credit expansion. Without such exercise, the goal of financial stability in the global banking system will be difficult to achieve.
Description
A dissertation submitted to the Faculty of Commerce, Law and Management University
of the Witwatersrand Business School
In fulfillment of the requirements for the degree
of
Master of Management in Finance and Investment
Johannesburg, 2016
Keywords
Citation
Thwala, Cyprian Mcwayizeni (2016) The sensitivity of bank credit risk indicators to macroeconomic variables, University of the Witwatersrand, <http://wiredspace.wits.ac.za/handle/10539/21499>