Evaluation of the Credit Portfolio Quality of Specialized Lending Institutions Licensed by the Palestinian Monetary Authority

Abstract

This study evaluates the composition and quality of credit portfolios held by specialized lending institutions licensed and supervised by the Palestinian Monetary Authority (PMA) over the period 2020-2024. Using annual cross‑sectional data from four purposively selected institutions which together represent 69.7% of the sector’s active portfolio and 62.25% of working units, we analyze sectoral portfolio composition and risk using the Portfolio at Risk (PAR) indicator. Non‑parametric tests (Mann-Whitney U and Kruskal-Wallis) are employed to compare risk across sector groups (productive, consumer, and residential) and within productive subsectors. Results show that housing consistently dominates active portfolios, commercial and services tend to be the smallest shares, and risk patterns vary markedly across institutions and years. The consumer sector exhibits the highest sensitivity in PAR during 2023-2024, while housing remains comparatively less risky. Evidence indicates no significant difference between productive and consumer PAR in 2020-2022, but a significant divergence appears in 2023-2024. Similarly, there is no significant difference between productive and residential PAR across all years, and no significant differences among productive subsectors. Findings support portfolio diversification, targeted risk controls for consumer lending, and capacity building for credit officers and borrowers. The paper closes with policy recommendations and avenues for future research.