Bank Funding to Businesses and Non-Performing Loans in Tunisia

The Tunisian banking sector suffers from non-performing loans (NPLs) which fuel its aversion to credit risk and hinder the financing of companies, mostly small ones. The research issue addresses the "transactional" versus "relational" nature of the loan relationship and its impact on NPLs, as regards a sample of 10 Tunisian banks observed over 2005-2017. Econometric analysis first tests a linear model between NPLs and the loan relationship determinants, suggesting that banks are little engaged in collecting soft (personal and qualitative) information from their clients. Second, estimating a (condition-nal) threshold effect in a non-linear model between these main determinants enables to distinguish between two regimes: above and below the threshold. Main results show that a stronger geographical proximity, thanks to a large number of branches, allows (large) banks a better knowledge of the specificities of their borrowers and an easy exchange of soft information, although descriptive statistics show that high NPLs rates are associated with large banks. The privilege of client-depositors in being granted credit does not allow banks to control their degree of risk aversion. This mismanagement of accounts receiva-ble is exacerbated by the low level of foreign ownership in the capital of most large banks, which preclude them from taking advantage of foreign expertise to improve their ability to meet the financial needs of companies.