Macroeconomic Determinants of Bad Loans: Evidence from Italian Banks

42 Pages Posted: 23 May 2011

Date Written: March 22, 2011

Abstract

In this paper we use a single-equation time series approach to examine the macroeconomic determinants of banks’ loan quality in Italy in the past twenty years, as measured by the ratio of new bad loans to the outstanding amount of loans in the previous period. We analyse the quality of loans to households and firms separately on the grounds that macroeconomic variables may affect these two classes of borrowers differently. According to our estimated models: i) the quality of lending to households and firms can be explained by a small number of macroeconomic variables mainly relating to the general state of the economy, the cost of borrowing and the burden of debt; ii) changes in macroeconomic conditions generally affect loan quality with a lag; and iii) the out-of-sample prediction accuracy of the models is quite satisfactory and proved to be robust to the recent financial crisis.

Keywords: bad loans, macroeconomic determinants, Italian banking system

JEL Classification: G21, C22

Suggested Citation

Bofondi, Marcello and Ropele, Tiziano, Macroeconomic Determinants of Bad Loans: Evidence from Italian Banks (March 22, 2011). Bank of Italy Occasional Paper No. 89, Available at SSRN: https://ssrn.com/abstract=1849872 or http://dx.doi.org/10.2139/ssrn.1849872

Marcello Bofondi (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Tiziano Ropele

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
1,051
Abstract Views
2,712
rank
22,875
PlumX Metrics