Factors Affecting Non-Performing Loans in Europe Before and After Global Financial Crisis

Abstract

: Non-performing loans is a major importance issue that banks need to keenly consider for banking system’s viability and economies sustainability, as banking sector’s stability is the foundation of macroeconomic policy. There are several macroeconomic and banking factors affecting non-performing loans and this paper aims to investigate the deterministic factors from both perspectives. For the purposes of our paper, we applied dymanic panel data analysis, using both macroeconomic and banking factors, in order to examine their impact on non-performing loans for the period 2005-2019 for 10 European countries (Greece, Italy, Portugal, Switzerland, Belgium, Germany, Ukraine, Spain, France and Austria). According to empirical results unemployment, lending interest rates and household consumption expenditure affect in positive statistical significant way non-performing loans. Moreover, our results indicate that economies with solid systems are more favorable to overcome crises, related to weaker economies. The nonperforming loans in strong economies didn’t overcome their average even after the outbreak of global financial crisis, in contrary to weaker economies. Thus, it is derived a strong linkage between healthy banking systems and robust economies. Our findings consist a good basis for policymakers and investors, in order to plan their policy, make decisions and take the necessary measures to mitigate the risk derived from the factors affecting the launch of non-performing loans, cracking the foundation of the banking system and threating economic stability.