Industry Specific Shocks and Non-Performing Loans in Barbados
Industry Specific Shocks and Non-Performing Loans in Barbados

Summary/Abstract: Despite the vast body of literature on the relationship between the macroeconomic environment and non-performing loans (NPLs), an area which has been neglected thus far, is a comparative study of the response of NPLs to industry-specific income shocks. Using panel VAR methods, this study investigates the sensitivity of NPLs to shocks to six industries in Barbados. The results suggest that there is some degree of heterogeneity in the response of NPL to these shocks. For instance, there is no evidence to suggest that shocks to the agriculture and manufacturing sectors — the two smallest sectors — affect NPLs. In contrast, our results suggest that positive shocks to the output of the distribution, professional and tourism industries lead to an overall reduction in the level of stress in the financial system — though the timing of responses differs across each industry.

• Details
• Contents