Non-performing Loans and Banking Profitability

Abstract

This article aimed to determine the effect of macroeconomic and specific variables on the ratio of non-performing loans, and study ‎the recursive direction of bank profitability to NPLs in Tunisian banks. To formalise this phenomenon, the author proposed a panel data ‎model that covers a sample of ten listed Tunisian banks over a period from 2007 to 2015. The empirical results indicate the ‎determining power of bank profitability measured by asset profitability, solvency ratio, credit growth rate, provision-based debt ‎coverage rate, bank size, inflation and unemployment. The effect of these variables veered between the preservative and destructive aspects of the quality of bank assets. Furthermore, this study enabled not only to identify the ‎explanatory factors of this phenomenon, but also to verify the existence of a simultaneous relation between NPLs and bank ‎profitability.‎