Determinants of non-performing loans in the United Arab Emirates conventional banks

Abstract

This study attempts to define the bank-specific and macroeconomic determinants of non-performing loans in sixteen conventional banks operating in the United Arab Emirates during the period 2013-2019. The study analyzed the data from banks' annual reports and data streams database where standard descriptive statistics and random effect model for hypothesis testing were used. The independent variables were regressed against non-performing loans ratio by using GRETL statistical tool. The study concluded that the determinants of the non-performing loans were the Return on Assets that had significant negative relationship with the non-performing loans, and Liquidity, and Loans to Deposits Ratios that had significant positive relationship. However, other bank-specific and macroeconomic factors were not a determinant of non-Performing Loans Ratio. Therefore, this study suggests that conventional banks in United Arab Emirates must develop new investments instruments as major source of income rather than relying heavily on lending activities. Additionally, it is especially important to improve the management efficiency of the operating expenses and keep good assets quality. Furthermore, this study suggests measuring the impact of more variables on the non-Performing Loans for longer period of study to have more accuracy and results' generalizations.