Non-Performing Loans in the ECCU: Determinants and Macroeconomic Impact

34 Pages Posted: 16 Dec 2016

See all articles by Kimberly Beaton

Kimberly Beaton

International Monetary Fund (IMF)

Alla Myrvoda

International Monetary Fund (IMF)

Shernnel Thompson

Eastern Caribbean Central Bank

Date Written: November 2016

Abstract

This paper assesses the determinants of NPLs in the Eastern Caribbean Currency Union (ECCU) and whether a deterioration in asset quality may result in negative feedback effects from the banking system to economic activity. The results suggest that the deterioration in asset quality can be attributed to both macroeconomic and bank-specific factors. Banks with stronger profitability and lower exposure to the construction sector and household loans tend to have lower NPLs. Further, some evidence indicates that foreign owned banks systematically have lower NPLs than domestic banks, pointing to the presence of important differences across bank practices with an impact on asset quality. Finally, the results emphasize the strength of macrofinancial feedback loops in the ECCU.

Keywords: Non-performing loans, Caribbean, Eastern Caribbean Currency Union, Banks, Credit expansion, Private sector, Asset management, Macrofinancial linkages, non-performing loans, credit growth, feedback effects.

Suggested Citation

Beaton, Kimberly and Myrvoda, Alla and Thompson, Shernnel, Non-Performing Loans in the ECCU: Determinants and Macroeconomic Impact (November 2016). IMF Working Paper No. 16/229, Available at SSRN: https://ssrn.com/abstract=2886396

Kimberly Beaton (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Alla Myrvoda

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Shernnel Thompson

Eastern Caribbean Central Bank ( email )

P.O. Box 89, Pond Road, Bird Rock
Basseterre, St. Kitts 0000
Saint Kitts and Nevis

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