Is there a threshold effect in the liquidity risk–non‐performing loans relationship? A<scp>PSTR</scp>approach for<scp>MENA</scp>banks

Boussaada, Rim; Hakimi, Abdelaziz; Karmani, Majdi

doi:10.1002/ijfe.2248

Cited by 16 publications

(22 citation statements)

References 81 publications

(93 reference statements)

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“…Macro-economic variables were also included to capture the effect of economic health. Following Abdelaziz et al (2020), Boussaada et al. (2020), Ghosh (2015), Jabbouri and Naili (2019) and Koju et al.…”

Section: Methodsmentioning

confidence: 99%

“…Macro-economic variables were also included to capture the effect of economic health. Following Abdelaziz et al (2020), Boussaada et al (2020), Ghosh (2015), Jabbouri and Naili (2019) and Koju et al (2018), growth of GDP was employed to account for business cycles. We included monetary policy (INTERATE) following Asiama and Amoah (2018).…”

Section: Variable Definitionsmentioning

confidence: 99%

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How does bank liquidity creation affect non-performing loans in the MENA region?

Mdaghri¹

2021

IJOEM

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PurposeThe study aims to empirically examine the effect of bank liquidity creation on non-performing loans (NPLs) in the Middle East and North Africa (MENA) region.Design/methodology/approachBerger and Bouwman's (2009) three-step methodology was employed to calculate the level of liquidity creation of a selected sample of 111 commercial banks in ten MENA countries from 2010–2017. Next, the two-step system generalized method of moments (GMM) estimator was used to investigate the linkage between bank liquidity creation and NPLs.FindingsThe results demonstrated a significant negative effect of bank liquidity creation on NPLs in the short and long term, implying that liquidity creation through both on- and off-balance sheet activities decreases NPLs. These findings accord with the “economic-enhancing” view. Furthermore, regression analysis investigated whether this relationship remained similar for Islamic and conventional banks. The results showed that liquidity creation diminishes Islamic and conventional bank NPLs.Research limitations/implicationsThe empirical findings raise several significant policy implications. Bank liquidity creation may decrease rather than increase NPLs, although the process of liquidity creation is viewed as risky by rendering banks more illiquid. Therefore, policy-makers should encourage bank liquidity creation to stimulate the economy. In a robust economy, borrowers are more likely to repay their debts, consequently diminishing banks' NPLs.Originality/valueTo the best of the author's knowledge, the current study is the first to provide empirical evidence on the effect of bank liquidity creation on NPLs in MENA countries.

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Section: Methodsmentioning

confidence: 99%

Section: Variable Definitionsmentioning

confidence: 99%

How does bank liquidity creation affect non-performing loans in the MENA region?

Mdaghri¹

2021

IJOEM

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“…Some recent studies argue that the association between two indicators could be nonlinear and that there is an optimal threshold that affects such relations. Several studies have verified this nonlinear relationship; for example, Ameur et al ( 2022 ) for the financial market sector, Hakimi and Hamdi ( 2019 ) for the financial development and human development relationship, and Boussaada et al ( 2022 ) and Hakimi et al ( 2020 ) for the banking sector. Recently, Ameur et al ( 2022 ) studied the relationship between the spot and futures markets using the NARDL model.…”

Section: Literature Reviewmentioning

confidence: 90%

Dirty versus renewable energy consumption in China: a comparative analysis between conventional and non-conventional approaches

et al. 2023

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This study uses two empirical approaches to explore the asymmetric effects of oil and coal prices on renewable energy consumption (REC) in China from 1970 to 2019. As a conventional approach, we used the nonlinear autoregressive distributed lags (NARDL) model, while machine learning was used as a non-conventional approach. The empirical findings of the NARDL indicate that oil and coal price fluctuations have a significant effect on REC for both the short and long term. The results of the non-conventional approaches based on machine learning indicated that the SVM model was more efficient than the KNN model in terms of accuracy, performance, and convergence. Referring to the SVM model findings, the results show that an increase in the coal price has a higher ability to predict REC than the oil price. As a robustness check, we also find that an increase in Brent prices significantly decreases REC. The findings of this study support the view that there is a substitution effect from oil to coal before initiating the use of renewable energy in China.

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“…Their findings are similar to prior studies and indicate a negative relationship between profitability and NPLs. More recently, Boussaada et al . (2020) examine the nonlinear association between liquidity risk and NPLs in MENA banks during the period 2004–2017.…”

Section: Literature Reviewmentioning

confidence: 98%

“…Their findings are similar to prior studies and indicate a negative relationship between profitability and NPLs. More recently, Boussaada et al (2020) examine the nonlinear association between liquidity risk and NPLs in MENA banks during the period 2004-2017. They find a threshold influence in the liquidity risk and NPL relationship, where, above the threshold of 73% for loan to deposit (LTD) ratio, liquidity risk increases the NPL level significantly.…”

Section: Literature Reviewmentioning

confidence: 99%

Nonlinear linkages between bank asset quality and profitability: evidence from dynamic and quantile approaches using a global sample

Alqahtani

Hamdi

Skully

2021

IJMF

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PurposeThe purpose of this study is to examine whether the relationship between asset quality and profitability is linear or nonlinear, using a global dataset containing 2,943 banks from advanced and emerging economies.Design/methodology/approachThe authors use the U-shape test to investigate the existence of a nonlinear relationship between asset quality and profitability. In addition, the dynamic panel generalised method of moments (GMM) and quantile regression are used to examine the nonlinear effect of profitability on nonperforming loans (NPLs).FindingsAfter controlling for macroeconomic and bank internal factors, the authors find empirical evidence supporting the existence of a nonlinear relationship in the form of a U-shape. This is also confirmed through the three-stage U test procedure. After distinguishing between advanced and emerging economies, the authors also find that, in advanced markets, the credit policy responds more rapidly to changes in credit market conditions than in emerging markets, providing insights into credit market dynamics.Research limitations/implicationsFurther research can check the robustness of this study’s findings in different markets and investigate the existence of nonlinearity in other bank variables.Practical implicationsIn a nutshell, the results demonstrate potential implications for policymakers who need to carefully monitor banks' lending behaviour to ensure that banks do not lower lending standards. In addition, banking regulators and supervisors should consider the possible nonlinear relationship in their risk assessments and macrostress tests. Further, these results are important for bank managers, who should monitor the performance of their loan portfolios to ensure that their credit officers do not lower credit standards. Likewise, for banks located in an emerging economy, investing in human capital and advanced technologies can enable them to respond more effectively to changes in the credit market.Originality/valueTo the best of the authors' knowledge, this study is considered the first to provide empirical evidence for the nonlinear relationship between asset quality and profitability.

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Is there a threshold effect in the liquidity risk–non‐performing loans relationship? APSTRapproach forMENAbanks

Cited by 16 publications

References 81 publications

How does bank liquidity creation affect non-performing loans in the MENA region?

How does bank liquidity creation affect non-performing loans in the MENA region?

Dirty versus renewable energy consumption in China: a comparative analysis between conventional and non-conventional approaches

Nonlinear linkages between bank asset quality and profitability: evidence from dynamic and quantile approaches using a global sample

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