Assessing US and Global Economic Policy Uncertainty Effects on Non-Performing Loans in MENA's Islamic and Conventional Banks

Abstract

Banks within the MENA regions serve as pivotal agents in fostering economic growth through extensive lending to businesses, individuals and corporations, thereby amplifying employment within the banking sector. A pressing concern affecting these banks is the proliferation of NPLs, which not only diminishes net earnings but also escalates credit risks. This study examined the impact of US monetary certainty and global economic policy uncertainty on NPLs within MENA, involving both conventional and Islamic banks. The study selected 92 banks from 13 countries across the MENA region, spanning an 18-year dataset from 2005 to 2022, comprising 50 conventional and 42 Islamic institutions. Utilising GMM estimation to surmount endogeneity and auto-serial correlation. The study discerned that US monetary policy uncertainty exerted a significant negative influence on NPLs across MENA, encompassing both conventional and Islamic banks. Moreover, the research highlighted a positive and significant relationship between global economic policy uncertainty, bank size and capital adequacy ratio with NPLs in MENA banks. These findings provide comprehensive insights for banks in the MENA region, informing their loan-granting strategies amidst uncertainty, ultimately mitigating the incidence of NPLs.