On the Determinants of Loan Default in the Saudi Banking System

Moayad Al Rasasi, Soleman Alsabban


The main purpose of this paper is to examine the key determinants influencing the non-performing loans (NPLs) in the Saudi banking system. To do so, we consider a set of macroeconomic, banking, and external factors over the period 2010Q1-2023Q3. The contribution of this work to the literature includes providing fresh evidence following the COVID-19 pandemic, utilizing quarterly observations unlike preceding literature, and adopting time series econometric techniques to identify key elements influencing NPLs. A vector error correction model (VECM) is estimated to capture NPL dynamics over both the long-run and short-run. The empirical evidence reveals that NPLs are determined by a combination of macro, banking, and external factors. Specifically, macroeconomic and external variables appear to have a significant impact on NPLs, and their effects are in parallel with theoretical expectations. Likewise, the impact of return on equity on NPLs is significant as expected by theory; however, the impact of other banking factors is against expectations.

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DOI: https://doi.org/10.11114/aef.v11i2.6897


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Applied Economics and Finance    ISSN 2332-7294 (Print)   ISSN 2332-7308 (Online)

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