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Debt Versus Non-Performing Loans: An Investigation on the Causality Direction Within the Countries of Eurozone

In: Debt in Times of Crisis

Author

Listed:
  • Charalampos Agiropoulos

    (University of Piraeus)

  • George Galanos

    (University of Piraeus)

  • Thomas Poufinas

    (Democritus University of Thrace)

Abstract

Over the last decade the stock of non-performing loans within the Eurozone has been increasingly viral both for the private and household sectors. The high level of non-performing loans trims the economic growth considering the bank denial for lending. This study uses an instrumental variable approach to examine the causality direction of the non-performing loans ratio (NPL) of Eurozone’s banking systems versus the public debt. Significant results are produced, as the relationship between NPLs and public debt is examined during the pre and post-financial crisis periods. Lags of NPL ratio, government debt, unemployment, consumer price index and income tax are employed in our models. The findings suggest that banks can improve the quality of their credit management by restructuring their collection process and the quality of their customers in order to reduce the number of NPLs in the short run so as to expedite the return to economic growth.

Suggested Citation

  • Charalampos Agiropoulos & George Galanos & Thomas Poufinas, 2021. "Debt Versus Non-Performing Loans: An Investigation on the Causality Direction Within the Countries of Eurozone," Springer Books, in: Thomas Poufinas (ed.), Debt in Times of Crisis, chapter 0, pages 215-235, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-74162-4_7
    DOI: 10.1007/978-3-030-74162-4_7
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