Effect of macroeconomic variables on banks’ delinquency rates in Mexico during COVID-19 versus the previous period

Abstract

Purpose: To study the effect of macroeconomic variables on the non-performing loan portfolio of banks in Mexico between 2001 and 2020.

Design/Methodology: Multiple regressions were used to analyze the impact of unemployment, interest rate and Gross Domestic Product (GDP) on the index of non-performing loans of banks in Mexico before COVID-19 pandemic and the period including the pandemic.

Results: Only the unemployment rate and GDP were significant. The impact of macroeconomic variables was different for each of the two periods studied, with less impact during the health crisis.

Implications: These results have implications for bank credit management and the design of public policies aimed at maintaining a solvent banking system.

Originality: This research explores the relationship between macroeconomic variables and the portfolio of overdue bank loans in the context of the coronavirus crisis. The two main contributions of this work, the first focuses on evaluating the effect of GDP and unemployment on the level of non-performing loans in banks during the COVID-19 crisis of which we are still immersed in it, and the definitive effects on the recovery of loans granted by banks are not yet known, so exploratory studies are still considered, and the second contribution was to analyze the effect of these macroeconomic variables in the stage prior to the SARS-CoV-2 pandemic.