Abstract
<p class="1main-text">The growing literature on credit risk determinants provides results that are based on the set of bad loans present in the bank's assets especially non-performing loans. Besides this classic proxy, the present paper examines the determinants of loan quality deterioration by using a qualitative measure. Actually, we take advantage of a detailed dataset containing information on the quality of loans contracted by banks to different Tunisian firms. The study aims to detect if credit risk determinants are different through quantitative and qualitative proxies. We take into account bank-specific indicators that are likely to affect banking credit risk. Overall, the results show that cost inefficiency, bank profitability is common determinants of the credit risk level and the loan quality deterioration, that are differently influenced by bank size and capitalization.</p>
Highlights
According to statistics from the Central Bank of Tunisia's 2014 report, the banking sector represents the main funding source to the Tunisian economy
The results of this study indicate that households‟ non-performing loans (NPLs) in the Tunisian banking sector tend to be significantly affected by GDP growth, inflation, interest rates and management quality
Given that little attention has been paid to investigate the determinants of problem loans at the bank-level solely, and in Tunisian banking sector, we focus on explaining the microeconomic determinants of credit risk
Summary
According to statistics from the Central Bank of Tunisia's 2014 report, the banking sector represents the main funding source to the Tunisian economy. The overall volume of credits amount to 60 million dinars ($28.91 million), where the total customer deposits have reached 51 million dinars ($24.57 million). Examining the factors determining problem loans in Tunisian banking sector is an important question that interest banks and mostly regulatory authorities anxious about financial stability. Once these variables are identified, the credit risk will be manageable using these factors
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