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Systematic and Unsystematic Determinants of Sectoral Risk Default Interconnectedness

Author

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  • Haithem Awijen

    (Omnes Education Group)

  • Younes Ben Zaied

    (EDC Paris Business School)

  • Ahmed Imran Hunjra

    (International University of Rabat)

Abstract

Assessing the financial stability of the banking industry, particularly in credit risk management, has become extremely crucial in times of uncertainty. Given that, this paper aims to investigate the determinants of the interconnectedness of sectoral credit risk default for developing countries. To that purpose, we employ a dynamic credit risk model that considers a variety of macroeconomic indicators, bank-specific variables, and household characteristics. Moreover, the SURE model is used to analyze empirical data. We find the connection between macroeconomic, bank-specific, and household characteristics, and sectoral default risk. The outcomes of macroeconomic factors demonstrate that few macroeconomic determinants significantly influence the sector’s default risk. The empirical results of household components reveal that educated households play a substantial role in decreasing sectoral loan defaults interconnectedness and vice versa. While for bank-specific characteristic, we find that greater bank profitability and specialization have substantially reduced loan defaults.

Suggested Citation

  • Haithem Awijen & Younes Ben Zaied & Ahmed Imran Hunjra, 2023. "Systematic and Unsystematic Determinants of Sectoral Risk Default Interconnectedness," Computational Economics, Springer;Society for Computational Economics, vol. 62(2), pages 561-587, August.
    • Handle: RePEc:kap:compec:v:62:y:2023:i:2:d:10.1007_s10614-022-10336-5
    DOI: 10.1007/s10614-022-10336-5
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    More about this item

    Keywords

    Default risk; Bank loans; Credit risk; Regulation;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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