Non-Performing Loans in European Systemic and Non-Systemic Banks

Journal of Financial Economic Policy, 2019

19 Pages Posted: 6 Jun 2019

See all articles by Peterson K Ozili

Peterson K Ozili

University of Essex - Essex Business School; Central Bank of Nigeria

Date Written: 2019

Abstract

The distinction between GSIBs (systemic banks) and non GSIBs (non-systemic banks) is driven by policy reasons. I examine the behaviour of non-performing loans in European systemic and non-systemic banks, and find that more profitable banks witness higher non-performing loans regardless of whether they are systemic or non-systemic. Systemic banks have fewer non-performing loans during economic booms and during periods of increased lending while non-systemic banks experience higher NPLs during periods of increased lending. I also observe that European non-systemic banks that exceed regulatory capital requirements have higher NPLs. In the post-2007 financial crisis period, the NPL of systemic banks is negatively associated with the economic cycle which imply that the NPL of systemic banks is procyclical with the state of the economy, and the NPL of systemic banks are positively associated with loan supply and bank profitability. On the other hand, the NPL of non-systemic banks is negatively associated with regulatory capital ratios, and is positively associated with bank profitability for non-systemic banks in the post-2007 financial crisis period. The findings have implications.

Keywords: credit risk, non-performing loans, systemic banks, systemic risk, impaired loans, asset quality; European banks, Europe, bank profitability.

JEL Classification: C33, E44, G21

Suggested Citation

Ozili, Peterson Kitakogelu, Non-Performing Loans in European Systemic and Non-Systemic Banks (2019). Journal of Financial Economic Policy, 2019. Available at SSRN: https://ssrn.com/abstract=3390555

Peterson Kitakogelu Ozili (Contact Author)

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Central Bank of Nigeria ( email )

Plot 33, Abubakar Tafawa Balewa Way
Central Business District, Cadastral Zone
Abuja
Nigeria

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