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Non-performing loans in European systemic and non-systemic banks

Author

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  • Peterson K. Ozili

Abstract

Purpose - The distinction between systemic banks (GSIBs) and non-systemic banks (non-GSIBs) is driven by policy reasons. This study aims to examine the behaviour of non-performing loans in European GSIBs and non-GSIBs from 2004 to 2013. Design/methodology/approach - The author uses regression methodology to analyse the association between non-performing loans (NPLs) and the state of the economy. Findings - The author finds that more profitable banks witness higher NPLs regardless of them being systemic or non-systemic. Secondly, GSIBs have fewer NPLs during economic booms and during periods of increased lending, while non-GSIBs experience higher NPLs during periods of increased lending. The author also observes that European non-GSIBs that exceed regulatory capital requirement also experience higher NPLs. In the post-crisis period, there is a significant and negative relationship between NPLs and the economic cycle for GSIBs in the post-financial crisis period and a significant and positive relationship between NPLs, loan supply and bank profitability for GSIBs in the post-financial crisis period; on the other hand, there is a significant and negative relationship between NPLs and regulatory capital ratios for non-GSIBs in the post-financial crisis period and a significant and positive relationship between NPLs and bank profitability for non-GSIBs in the post-financial crisis period. The findings have implications. Originality/value - To the best of the author’s knowledge, the literature on the determinants of NPL has not empirically examined the behaviour of NPLs in European GSIBs and non-GSIBs. This paper examines this issue to provide insights to help policymakers and academics understand the peculiarities of NPLs in Europe.

Suggested Citation

  • Peterson K. Ozili, 2019. "Non-performing loans in European systemic and non-systemic banks," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 12(3), pages 409-424, October.
    • Handle: RePEc:eme:jfeppp:jfep-02-2019-0033
    DOI: 10.1108/JFEP-02-2019-0033
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    Citations

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    Cited by:

    1. Liu, Suyi & Jin, Justin & Nainar, Khalid, 2023. "Does ESG performance reduce banks’ nonperforming loans?," Finance Research Letters, Elsevier, vol. 55(PA).
    2. Faisal Abbas & Omar Masood & Shoaib Ali & Sohail Rizwan, 2021. "How Do Capital Ratios Affect Bank Risk-Taking: New Evidence From the United States," SAGE Open, , vol. 11(1), pages 21582440209, January.
    3. Ozili, Peterson K, 2021. "Bank non-performing loans in the Fintech era," MPRA Paper 113467, University Library of Munich, Germany.

    More about this item

    Keywords

    Banks; Financial risk and risk management; Macroeconomic policy; Credit risk; Non-performing loans; Systemic banks; Systemic risk; Impaired loans; Asset quality; European banks; Europe; Bank profitability; C33; E44; G21;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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