Skip to main content
SpringerLink
Log in
Book cover

Non-Performing Loans and Resolving Private Sector Insolvency pp 47–68Cite as

Palgrave Macmillan

Non-performing Loans: A Review of the Literature and the International Experience

  • Chapter
  • First Online:

Abstract

The chapter presents a thorough overview of the determinants of non-performing loans. A major claim in the literature is that the deregulation of the banking system over the past few decades has led to both increased bank competition and credit risk. There are two main streams in the literature that examine the determinants of bad loans: the first accepts the perspective that the macroeconomic environment influences credit risk; the second adopts the viewpoint that credit risk is affected by bank-specific factors. Recent empirical evidence highlights the importance of both macroeconomic and bank-related factors but also the significance of other influences related to the broader legal and regulatory environment, in explaining the evolution of credit risk.

This is a preview of subscription content, log in via an institution.

Chapter
USD   29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD   129.00
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD   169.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD   169.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Learn about institutional subscriptions

References

  • Athanasoglou, P., Daniilidis, I., 2011. Procyclicality in the banking industry: causes, consequences, and response. Bank of Greece, Working Paper.

    Google Scholar 

  • Angklomkliew, S., George, J., and Packer, F. (2009). Issues and developments in loan loss provisioning: The case of Asia. BIS Quarterly Review, 69–83.

    Google Scholar 

  • Beck, R., Jakubik, P., Piloiu, A., 2013a. Non-Performing Loans: What Matters in Addition to the Economic Cycle? ECB Working Paper Series, 1515.

    Google Scholar 

  • Belaid, F., 2014a. Loan quality determinants: evaluating the contribution of bank-specific variables, macroeconomic factors and firm level information. Graduate Institute of International and Development Studies. Working Paper No 04/2014.

    Google Scholar 

  • Baltagi, B.H. (2001). Econometric analysis of panel data (2nd ed.), Chichester: John Wiley & Sons.

    Google Scholar 

  • Bernanke, B., Gertler, M., Gilchrist, S., 1998. The Financial Accelerator in a Quantitative Business Cycle Framework. NBER Working Paper No. 6455.

    Google Scholar 

  • Bernanke, B., Gertler M., 1989. Agency Costs, Net Worth, and Business Fluctuations. The American Economic Review 79(1), 14–31.

    Google Scholar 

  • Barseghyan, L., 2010. Non-performing loans, prospective bailouts, and Japan’s slowdown. Journal of Monetary Economics, 57, 873–890.

    Article  Google Scholar 

  • Beck, R., Jakubik, P., Piloui, A., 2013b. Non-performing Loans What Matters in Addition to the Economic Cycle? European Central Bank Working Paper Series 1515.

    Google Scholar 

  • Berg, Sigbjørn, Finn Førsund, and Eilev Jansen, 1992, “Malmquist Indices of Productivity Growth during the Deregulation of Norwegian Banking, 1980-89,” Scandinavian Journal of Economics 94, 211–228.

    Article  Google Scholar 

  • Berger, A.N., and De Young, R. (1997). Problem loans and cost efficiency in commercial banks. Journal of Banking & Finance, 21, 849–870.

    Article  Google Scholar 

  • Bikker, J.A., and Metzemakers, P., A., J. (2005). Bank provisioning behaviour and procyclicality. International Financial Markets, Institutions and Money, 15, 141–157.

    Google Scholar 

  • Bolt, W. and Tieman, A.F., 2004. Banking Competition, Risk, and Regulation. The Scandinavian Journal of Economics, 106: 783–804.

    Article  Google Scholar 

  • Borio, C., Furfine, C., Lowe, P., 2001. Procyclicality of the financial system and financial stability: issues and policy options. BIS Papers No 1.

    Google Scholar 

  • Boudriga, A. N., Taktak, B. and Jellouli, S. (2009a). Bank Specific, Business and Institutional Environment Determinants of Nonperforming Loans: Evidence from MENA Countries, ERF 16th Annual Conference, Cairo, 2009.

    Google Scholar 

  • Boudriga, A. N., Taktak, B. and Jellouli, S. (2009b). Banking supervision and nonperforming loans: A cross-country analysis. Journal of Financial Economic Policy, 1 (4), 286–318.

    Article  Google Scholar 

  • Bunn, P., Redwood, V., 2003. Company Accounts Based Modelling of Business Failures and the Implications for Financial Stability. Bank of England Working Paper No 210.

    Google Scholar 

  • Castro, V. (2013). Macroeconomic determinants of the credit risk in the banking system: The case of the GIPSI. Economic Modelling, 31, 672–683.

    Article  Google Scholar 

  • Calomiris, C., Klingebiel, D., and Laeven, L. (2004). A taxonomy of financial crisis resolution mechanisms: Cross-country experience. World Bank Policy Research Working Paper, No. 3379.

    Google Scholar 

  • Cavallo, M., and Majnoni, G., (2001). Do banks provision for bad loans in good times? Empirical evidence and policy implications. Policy Research Working Paper World Bank., No. 2619.

    Google Scholar 

  • Cingolani, M, 2013. Finance Capitalism: A Look at the European Financial Accounts. PANOECONOMICUS, 2013, 3, 249–290.

    Article  Google Scholar 

  • Climent-Serrano, S., Pavia, J., 2014. An analysis of loan default determinants: the Spanish case. Banks and Bank Systems 9(4).

    Google Scholar 

  • Cotugno, M., Stefanelli, V. and Torluccio, G. (2010). Bank intermediation models and portfolio default rates: What’s the relation? Proceedings of 23rd Australasian Finance and Banking Conf. Sydney.

    Google Scholar 

  • Cragg, J. G. (1983). More efficient estimation in the presence of heteroskedasticity of unknown form. Econometrica, 51 (3), 751–763.

    Article  Google Scholar 

  • De Bock, R., and Demyanets, Α. (2012). Bank asset quality in emerging markets: Determinants and spillovers. IMF Working Paper, no. 71.

    Google Scholar 

  • Desmet, K., (2000). Accounting for the Mexican banking crisis. Emerging Markets Review, 1 (2), 165–181.

    Article  Google Scholar 

  • Djankov, S., McLiesh, C., Shleifer, A., 2007. Private credit in 129 countries. Journal of Financial Economics, 84 (2): 299–329.

    Article  Google Scholar 

  • Espinoza, R., and Prasad, A. 2010. Non-performing loans in their GCC banking system and their macroeconomic effects. IMF Working Paper, Middle East and Central Asia Department, no.224.

    Google Scholar 

  • Fernandez de Lis, S., Martinez Pagés, J., and Saurina, J., 2000. Credit Growth, Problem Loans and Credit Risk Provisioning in Spain. Banco de Espana. Working Paper 18.

    Google Scholar 

  • Gonzales-Hermosillo, B., 1999, June. Developing indicators to provide early warnings of banking crises. Financ. Dev. 1999, 36–39.

    Google Scholar 

  • Godlewski, C.J., 2004. Bank capital and credit risk taking in emerging market economics. Journal of Banking Regulation, 6 (2): 128–145.

    Article  Google Scholar 

  • Glogowski, A. (2008). Macroeconomic determinants of Polish banks’ loan losses-results of a panel data study. National Bank of Poland, Working Paper no. 53.

    Google Scholar 

  • Gup, B.E. and Kolari, J.W. (2005). Commercial banking: The management of risk, (3rd ed.), John Wiley and Sons Ltd.

    Google Scholar 

  • Fofack, Hipollyte. 2005. “Non-Performing Loans in Sub-Saharan Africa: Causal Analysis and Macroeconomic Implications.” World Bank Policy Research Working Paper 3769.

    Google Scholar 

  • Hansen, L.P. (1982). Large sample properties of generalized method of moments estimators. Econometrica, 50 (4), 1029–1054.

    Article  Google Scholar 

  • Hasan, I., and Wall, L.D. (2004). Determinants of the loan loss allowance: Some crosscountry comparisons. The Financial Review, 39 (1), 129–152.

    Article  Google Scholar 

  • Hughes, Joseph P., and Loretta J. Mester, 1993, “A Quality and Risk-Adjusted Cost Function for Banks: Evidence on the ‘Too-Big-To-Fail’ Doctrine,” The Journal of Productivity Analysis 4, 293–315.

    Article  Google Scholar 

  • Jakubík, P., and Reininger, T. (2013). Determinants of nonperforming loans in Central, Eastern and Southeastern Europe. Oesterreichische Nationalbank, Focus on European Economic integration, Q3/13, 48–66.

    Google Scholar 

  • Jappelli, T., Pagano, M. 2002. Information sharing, lending and defaults: Cross-countries evidence. Journal of Banking & Finance, 26 (10), 2017–2045.

    Article  Google Scholar 

  • Jeong, S. and Jung, H., 2013. “Bank Wholesale Funding and Credit Procyclicality: Evidence from Korea. Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, 60, 615–631.

    Google Scholar 

  • Jimenez, G., Saurina, J., 2005. Credit cycles, credit-risk, and prudential regulation. Banco de España, January.

    Google Scholar 

  • Keeton, W. R., and Morris, C. S. (1987). Why do banks’ loan losses differ? Federal Reserve Bank of Kansas City, Economic Review, May, 3–21.

    Google Scholar 

  • Keeton, W., 1999. Does faster loan growth lead to higher loan losses? Federal Reserve Bank of Kansas City Economic Review, 2nd quarter 1999, 57–75.

    Google Scholar 

  • King, R.G., Plosser, C.I., 1984. Money, Credit, and Prices in a Real Business Cycle. American Economic Review 74, 363–380.

    Google Scholar 

  • Klein, N., 2013. Non-Performing Loans in CESEE: Determinants and Impact on Macroeconomic Performance. IMF Working Paper, WP/13/72.

    Google Scholar 

  • La Porta, R., Lopez de Silanes, F., Shleifer, A. and Vishny, R., 1998. Law and Finance. Journal of Political Economy, 106 (6): 1113–1155.

    Article  Google Scholar 

  • Lawrence, E. C., 1995. Consumer Default and the Life Cycle Model. Journal of Money Credit and Banking. 27, 939–954.

    Article  Google Scholar 

  • Louzis, D., Vouldis, A., Metaxas, V., 2012. Macroeconomic and bank-specific determinants of NPLs in Greece: A comparative study of mortgage, business and consumer loan portfolios. Journal of Banking and Finance 36, 1012–1027.

    Article  Google Scholar 

  • Macit, F., 2012. What determines the non-performing loans ratio: evidence from Turkish commercial banks. Cent. Econ. Anal. J. Econ. 13, 33–39.

    Google Scholar 

  • Makri, V., 2015. What Triggers Loan Losses? An Empirical Investigation of Greek Financial Sector. SPOUDAI Journal of Economics and Business 65, 119–143.

    Google Scholar 

  • Makri, V., Tsagkanos, A., Bellas A., 2014. Determinants of Non-Performing Loans: The case of Eurozone. PANOECONOMICUS 2, 193–206.

    Article  Google Scholar 

  • Melecky, M., Podpiera, A., 2010. Macroprudential Stress-testing Practices of Central Banks in Central and Southern Eastern Europe: An Overview and Challenges Ahead. Policy Research Working Paper, World Bank

    Google Scholar 

  • Michael Manove, A., Padilla, J. and Pagano, M., 2001. Collateral versus Project Screening: A Model of Lazy Banks. The RAND Journal of Economics 32, 726–744.

    Article  Google Scholar 

  • Messai, A., Jouini, F., 2013. Micro and macro determinants of non-performing loans. Int. J. Econ. Financ. Issues 3, 852–860.

    Google Scholar 

  • Milne, A, 2014. Distance to default and the financial crisis. Journal of Journal of Financial Stability 12, 26–36

    Article  Google Scholar 

  • Ninimaki, J.P. (2012). Hidden loan losses, moral hazard and financial crises. Journal of Financial Stability, 8 (1): 1–14.

    Article  Google Scholar 

  • Nkusu, M. (2011). Nonperforming loans and macrofinancial vulnerabilities in advanced economies. IMF Working Paper 11/161.

    Google Scholar 

  • Panopoulou, M., 2005. Technological Change and Corporate Strategy in the Greek Banking Industry, Athens: KEPE

    Google Scholar 

  • Perotti, R., (1996). Fiscal consolidation in Europe: Composition matters. American Economic Review, 86 (2):105–110.

    Google Scholar 

  • Pesaran, H., Schuermann, T., Treutler, M., Weiner S., 2006. Macroeconomic Dynamics and Credit Risk: A Global Perspective. Journal of Money, Credit and Banking 38(5), 1211–1261.

    Article  Google Scholar 

  • Pesola, J., 2005. Banking fragility and distress: An econometric study of macroeconomic determinants. Bank of Finland Papers, No13/2005.

    Google Scholar 

  • Rajan R., 1994. Why Bank Credit Policies Fluctuate: A Theory and Some Evidence. The Quarterly Journal of Economics 109, 399–441.

    Article  Google Scholar 

  • Rajan, R., Dahl, S.C., 2003. Non-performing Loans and Terms of Credit of Public Sector Banks in India: An Empirical Assesment. Reserve Bank of India. Occasional Papers 24(3).

    Google Scholar 

  • Rinaldi L. and Sanchis-Arellano A., 2006a. Household Debt Sustainability: What explains Household Non-performing Loans? An Empirical Analysis. ECB Working Paper.

    Google Scholar 

  • Quagliariello, M. (2007). Banks’ riskiness over the business cycle: A panel analysis on Italian intermediaries. Applied Financial Economics, 17, 119–138.

    Article  Google Scholar 

  • Reinhart, C.M., and Rogoff, K. (2010). From financial crash to debt crisis. NBER Working Paper Series, No. 15795.

    Google Scholar 

  • Salas, V., and Saurina, J. (2002). Credit risk in two institutional regimes: Spanish commercial and savings banks. Journal of Financial Services Research, 22 (3), 203–224.

    Article  Google Scholar 

  • Samad, A., (2012). Credit risk determinants of bank failure: Evidence from US bank failure. International Business Research, 5 (9), 10–15.

    Article  Google Scholar 

  • Saunders, A. and Cornet, M.M., (2008). Financial institutions Management, A Risk Management Approach (6th edition), McGraw-Hill Irwin.

    Google Scholar 

  • Sinkey Jr., J. F., and Greenawalt, M. B. (1991). Loan-loss experience and risk-taking behaviour at large commercial banks. Journal of Financial Services Research, 5, 43–59.

    Article  Google Scholar 

  • Skarica, B., 2014. Determinants of non-performing loans in Central and Eastern European countries. Financ. Theory Prac. 38, 37–59.

    Article  Google Scholar 

  • Stern, G., Feldman, R., 2004. Too Big to Fail: The Hazards of Bank Bailouts. The Brookings Institution, Washington, DC.

    Google Scholar 

  • Zeng, S., 2012. Bank non-performing loans (NPLs): a dynamic model and analysis in China. Mod. Econ. 3, 100–110.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Prifysgol Bangor University, Bangor, UK

    Konstantinos I. Nikolopoulos

  2. Department of Economics, University of Peloponnese, Tripoli, Greece

    Andreas I. Tsalas

Authors
  1. Konstantinos I. Nikolopoulos
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Andreas I. Tsalas
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Editors and Affiliations

  1. Group Chief Economist Eurobank Ergasias S.A., Athens, Greece

    Platon Monokroussos

  2. Hellenic Bank Association, Counsel to the Board of Directors, Athens, Greece

    Christos Gortsos

Rights and permissions

Reprints and permissions

Copyright information

© 2017 The Hellenic Bank Association

About this chapter

Cite this chapter

Nikolopoulos, K.I., Tsalas, A.I. (2017). Non-performing Loans: A Review of the Literature and the International Experience. In: Monokroussos, P., Gortsos, C. (eds) Non-Performing Loans and Resolving Private Sector Insolvency. Palgrave Macmillan Studies in Banking and Financial Institutions. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-50313-4_3

Download citation

  • DOI: https://doi.org/10.1007/978-3-319-50313-4_3

  • Published:

  • Publisher Name: Palgrave Macmillan, Cham

  • Print ISBN: 978-3-319-50312-7

  • Online ISBN: 978-3-319-50313-4

  • eBook Packages: Economics and FinanceEconomics and Finance (R0)

Publish with us

Policies and ethics

Search

Navigation