Non-Performing Loans and the Supply of Bank Credit: Evidence from Italy

41 Pages Posted: 19 Apr 2017

Date Written: March 8, 2017

Abstract

We use an extensive loan-level dataset to study the influence of non-performing loans (NPLs) on the supply of bank credit to non-financial firms in Italy between 2008 and 2015. We use time-varying firm fixed effects to control for shifts in demand and changes in borrower characteristics, and we also resort to the supervisory interventions associated to the 2014 Asset Quality Review to identify exogenous variations in the banks’ NPL ratios. We find that banks’ lending behavior is not causally affected by the level of NPL ratios: the negative correlation between NPL ratios and credit growth in our data is mostly generated by changes in firms’ conditions and a contraction in their demand for credit. However, the exogenous emergence of NPLs and the associated increase in provisions can cause a negative adjustment in credit supply.

Keywords: credit register, credit risk, credit supply, non-performing loans

JEL Classification: E51, E58, G00, G21

Suggested Citation

Accornero, Matteo and Alessandri, Piergiorgio and Carpinelli, Luisa and Sorrentino, Alberto Maria, Non-Performing Loans and the Supply of Bank Credit: Evidence from Italy (March 8, 2017). Bank of Italy Occasional Paper No. 374. Available at SSRN: https://ssrn.com/abstract=2954995 or http://dx.doi.org/10.2139/ssrn.2954995

Matteo Accornero

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Piergiorgio Alessandri (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Luisa Carpinelli

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Alberto Maria Sorrentino

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
346
Abstract Views
1,277
rank
89,861
PlumX Metrics