Macroeconomic and Bank Specific Determinants of Non-Performing Loans in UAE Conventional Bank

This paper uses panel data methodology including Random Effects model to identify the bank-specific determinants and macroeconomic determinants of non-performing loans in the United Arab Emirates (UAE) conventional banks for the period 2008-2015. Among the bank-specific determinants, non-performing loans (NPL, t-1) indicate a significant positive relationship with NPL and liquidity ratio indicate a significant negative relationship with NPL, whereas capital adequacy ratio and return on assets was found to have an insignificant relationship due to the robust banking regulations in UAE. All the macroeconomic determinants, namely, gross domestic product, growth, inflation, domestic credit to private sector, unemployment and government debt appeared to be insignificant in determining the level of NPLs, suggesting that the crisis is more intrinsic to internal issues within the corporates and not related to macroeconomic factors.

Keywords: Non-performing Loans, Panel Data, Bank Specific Determinants, Macroeconomic Determinants, United Arab Emirates