Factors Affecting Non-Performing Loans in Conventional Commercial Banks: Empirical Evidence from Arab Countries

Abstract

The current study aims to identify the factors affecting non-performing loans in conventional banks, and includes panel data, which is balanced annual data for a sample of 91 commercial banks operating in 12 Arab countries during the period (2011-2020). The study, which included 910 annual observations, examined and identified bank-specific, industry-specific, and macroeconomic factors affecting non-performing loans (NPLs) in conventional banks. NPLs were considered the dependent variable, measured as “Impaired loans as a percentage of gross loans." Multiple linear regression analysis using the panel Corrected Standard Error Estimation (PCSE) model revealed that the level of NPLs is significantly influenced by bank-specific factors, particularly the return on average assets (ROAA) and bank size (B-Size). The market concentration ratio (CR3) also significantly affects the level of NPLs. Macroeconomic factors; however, had a substantial effect on the level of NPLs.