Determinants of Non-Performing Loans for the EEC Region. A Financial Stability Perspective

Abstract

This article investigates the determinants of non-performing loans for a panel of EEC countries and the implications for the real economy, covering the period 2005-2017. Among the determinants, the paper proposes macroeconomic factors, banking sector variables, and cost and governance indicators. Additionally, the paper explores the extensive use of macroprudential measures in these countries. Using a panel with fixed effects and a dynamic GMM estimator, the results support the existing findings that adverse macroeconomic developments are generally associated with higher non-performing loans, while increases in NPLs have a rather transitory effect on the real economy and credit. NPL ratios increase if macroeconomic conditions deteriorate, while an improvement in the government effectiveness reduces them. A more profitable and better capitalized banking sector generally leads to lower NPLs. Moreover, countries with higher past credit growth rates witnessed higher NPLs in the periods that followed. These results support the use of macroprudential measures for increasing the resilience of borrowers, such as limits on the indebtedness level (such as debt service-to-income, DSTI or loan-to-value, LTV caps), as tools to temper the credit cycle.

Macroeconomic, Structural, and Bank-specific Determinants of Non-performing Loans in Central and Eastern Europe

“…Therefore, the relationship between the unemployment rate and NPLs is positive and significant; an increase in the unemployment rate would reflect an increase in NPLs (Szarowska, 2018). Klein (2013), Makri et al (2014), Škarica (2014), Çifter (2015), and Tatarici et al (2020) find a significant and positive relationship between unemployment and NPL in CEE countries. Therefore, we expect a positive relationship between the unemployment variable and NPLs.…”

“…The loan-to-deposit ratio is an important indicator, as it represents the bank's liquidity by measuring the funds that a bank has used in loans from accumulated deposits (Dimitrios et al, 2016). This variable was found to be positive and significant by Dimitrios et al (2016) and Tatarici et al (2020) for CEE countries, whereas it was negative and significant by Çifter (2015).…”

Analisis Mendalam Terhadap Non-Performing Loans (Npl) Di Sektor Perbankan Indonesia: Dampak Terhadap Dana Pihak Ketiga (Dpk) Dan Kredit

“…Namun, tantangan kritis yang dihadapi oleh sektor perbankan Indonesia adalah adanya Kredit Bermasalah (Non-Performing Loans/NPL) (Bahtiar, 2020). NPL menjadi indikator utama dari pinjaman yang mengalami kesulitan dalam pelunasan, yang berpotensi menimbulkan risiko terhadap kesehatan keuangan bank (Nansi, 2019;Tatarici et al, 2020).…”

Collaborative Research for Excellence in Economics and Social Sciences

“…Law enforcement agencies throughout the union must keep crimes under control, while at the same time safeguarding the constitutional rights of the European population. Constant endeavours made by member states are not enough (Tatarici et al, 2020), especially when terrorist bands scale up their activity. The Lisbon Treaty conferred EU the title of justice, security, and freedom realm.…”