Determinants of financial default risk for loans and credit facilities: Applied study on a sample of Saudi banks

Document Type : Original Article

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Public Finance Department Business Administration Department King Faisal University Saudi

Abstract

This study aims to identify the risks of nonperforming loans in Saudi banks and the impact of economic and financial factors on these nonperforming loans as the banks in general represent an essential factor of the national economy as well as play the vital role in providing credit facilities. By checking the size of credit granted by sample of commercial banks in Saudi Arabia during the period 2001 to 2016, the study found that the most significant factors that affect the risks of nonperforming loans are: real Gross Domestic Product (GDP) growth rate, size of bank credit, interest rates on loans, and money supply. However, the study found that the inflation rate, unemployment rate, per capita income, size of consumption loans, and public debt have no impact on the nonperforming loans.The   study suggests that the banks should consider the economic and financial factors that affect the non performing loans. Further, the study suggests that the commercial banks should diversify their investments and not depend only on providing bank credit as well as the banks must follow up all loans and their payment process

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