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Credit Supply Response to Non-Performing Loans: Some Evidence From the Italian Banking System

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  • Elizabeth J. Casabianca

Abstract

Do high levels of NPLs depress credit supply? And, what are the implications of NPL buildups on banks' lending behaviour? To answer these questions we estimate impulse responses using local projections on an unbalanced sample of Italian banks observed from 2009 to 2016. Our results provide fresh evidence on the negative association between NPLs and banks' loans supply. More specifically, we find that an unexpected shock to the level of NPL ratio is negatively associated to credit supply for at least two years after. Similarly, an unanticipated NPL ratio buildup is related to banks adopting a conservative lending behaviour in the following four years. Â JEL classification numbers: E51, E58, G00, G21

Suggested Citation

  • Elizabeth J. Casabianca, 2020. "Credit Supply Response to Non-Performing Loans: Some Evidence From the Italian Banking System," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 10(4), pages 1-3.
    • Handle: RePEc:spt:apfiba:v:10:y:2020:i:4:f:10_4_3
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    References listed on IDEAS

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    More about this item

    Keywords

    NPLs; Loan Supply; Local Projections Model;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G00 - Financial Economics - - General - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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