Non-Performing Loans: What Matters in Addition to the Economic Cycle?

34 Pages Posted: 5 Mar 2013

See all articles by Roland Beck

Roland Beck

European Central Bank (ECB)

Petr Jakubik

European Central Bank (ECB); Charles University in Prague

Anamaria Piloiu

Goethe University Frankfurt

Date Written: February 11, 2013

Abstract

Using a novel panel data set we study the macroeconomic determinants of nonperforming loans (NPLs) across 75 countries during the past decade. According to our dynamic panel estimates, the following variables are found to significantly affect NPL ratios: real GDP growth, share prices, the exchange rate, and the lending interest rate. In the case of exchange rates, the direction of the effect depends on the extent of foreign exchange lending to unhedged borrowers which is particularly high in countries with pegged or managed exchange rates. In the case of share prices, the impact is found to be larger in countries which have a large stock market relative to GDP. These results are robust to alternative econometric specifications.

Keywords: Non-performing loans, credit risk, currency mismatches

JEL Classification: G21, G28, G32, F34

Suggested Citation

Beck, Roland and Jakubik, Petr and Piloiu, Anamaria, Non-Performing Loans: What Matters in Addition to the Economic Cycle? (February 11, 2013). ECB Working Paper No. 1515. Available at SSRN: https://ssrn.com/abstract=2214971

Roland Beck (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Petr Jakubik

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Charles University in Prague ( email )

Celetn√° 13
Praha 1, 116 36
Czech Republic

Anamaria Piloiu

Goethe University Frankfurt ( email )

Gr√ľneburgplatz 1
Frankfurt am Main, 60323
Germany

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