Chart Alert: MENA NPL to gross loans ratio lower than South Asia but higher than World average

Non-performing loans (NPLs) to gross loans ratio was higher in MENA (4.6%) than the average calculated for the World as a whole (4.1%) but lower than South Asia (7.8%) in 2014. A look at the time series data, suggests that the gap in this ratio is narrowing over time for the two regions i.e. MENA versus the World. For example, in 2005 this ratio was at 8% vs 4% for MENA and the World respectively narrowing to 5.1% and 4% respectively by 2010. 

This trend was supported in parts by high nominal growth rates, low interest rates as well improvements in macroprudential framework, particularly in the GCC. In the past, higher oil prices helped buoy economies of the oil exporters in the region that in turn had a multiplier effect on the wider MENA in terms of remittances, loans and grants. Looking ahead, in a lower oil price environment, there could be a possible surge in NPLs unless active steps are taken to develop liquidity and risk management tools within the banking systems. In addition, structural reforms like SME lending norms and insolvency rules could go a long way in improving credit conditions critical for supporting business and investment activity in the region.


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