Abstract
Credit risk is a double-edged sword that banks should wisely and carefully measure and manage to exploit its advantages for better financial results. Otherwise, it could threaten their survival in the market and slacken the growth of the economies. Developing countries need to increase their loans to support economic growth but this wouldn’t be effective unless they have efficient credit risk management that is able to lower the non-performing loan (NPL) ratio. In Egypt, the corporate non-performing loan (CPL) ratio decreased steadily during 2010-2018, but beyond that period, it began to rise, indicating higher credit risk exposure, putting the financial stability of the banking system at risk. In the present work, the generalized methods of moments (GMM) and fixed-effects estimation models were employed to identify the macro and microeconomics determinants of retail and corporate credit risks in the banking sector of Egypt during 2011-2020. More robust and accurate customized estimated models were developed by dividing the NPLs into categories to help credit risk managers better predict the future exposure of the retail and corporate credit risks. The findings revealed that ROA, bank size, income diversification, liquidity, and internal debt are negatively associated with the CNPL while the external debt is positively related. Finally, the Retail NPL ratio is affected only by bank efficiency and income diversification, indicating that corporate credit risk is more sensitive to macro and microeconomic determinants than retail ones.
Keywords: Retail and Corporate credit risk, Non-Performing Loans, Microeconomics, and Macroeconomics.
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