Response Of The Banking Cycle To Economic Fluctuations In Egypt For The Period ( 2004 – 2020)

Abstract

The researchers aim to analyze the response of the banking cycle to economic fluctuations in Egypt and the ways of banking hedging. The research problem was formulated to answer the question: Do economic fluctuations affect the banking cycle, and what are the reactions of commercial banks toward those fluctuations? Commercial banks suffer from excessive sensitivity to fluctuations. Economic fluctuations were analyzed based on the indicators of the banking cycle utilizing the logarithmic function to produce significant results after analyzing the stability of the time series. Hence, the results indicated a direct relationship between GDP and internal debt with total credit. At the same time, inflation was associated with a negative relationship with credit. The tests of models for the Arab Republic of Egypt proved the effect of independent variables on the dependent variables and, thus, the effect of fluctuations on the banking cycle. The most important of which is seeking to formulate an early warning model or a system for predicting financial and economic crises, to be applied to ensure stability, based on macroeconomic indicators to use them as warning indicators about the possibility of a country falling into a financial crisis resulting from external or internal causes and the non-expansion in granting credit during periods of crisis to avoid the risk of non-payment and the losses that result from it.