Abstract
We investigate the relationship between non-performing loans (NPLs ) and their fundamentals, mainly bank and macroeconomic variables . This is done based on aggregate portfolio loans from the Greek economy. This economy constitutes an interesting case to study the factors determining NPLs , given the pervasive recessionary conditions held in it after the global financial crisis and the outbreak of its sovereign debt crisis occurred in the year 2010. We suggest a new econometric framework to study the above relationship which extends the SUR (seemingly unrelated regressions) framework to allow for a common break in its slope coefficient of unknown time. We show that the deterioration in the macroeconomic conditions (captured by very high rates of unemployment ) and political uncertainty constitute key factors in explaining the sharp rise of NPLs of the Greek banking sector after the first quarter of the year 2012. With the exception of bank profitability, we find that bank-specific variables associated with bank capitalization and liquidity risk seem to determine NPLs only under normal economic conditions.
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Notes
- 1.
Note that, since the intercepts of the model \( c_{i} \) are not found to differ across \( i \), in the implementation of test statistic LR-stat we assume that under the null hypothesis \( c = c^{ * } \), for all \( i \).
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Acknowledgements
The authors would like to thank I. Assimakopoulos, D. Christelis, D. Georgarakos, H. Gibson, H. Louri, P.Monokroussos, S., Pagratis, G. Palaiodimos, A. Philippopoulos and A. Samitas, as well as the seminar participants at AUEB for useful comments and suggestions. The views presented in the paper are those of the authors alone and do not necessarily reflect the views of their respective institutions. Yiannis Dendramis acknowledges support from the European Union’s Horizon 2020 research and innovation programme under the Marie Sklodowska-Curie grant agreement No 708501.
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Charalambakis, E., Dendramis, Y., Tzavalis, E. (2017). On the Determinants of NPLs: Lessons from Greece. In: Bournakis, I., Tsoukis, C., Christopoulos, D., Palivos, T. (eds) Political Economy Perspectives on the Greek Crisis. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-63706-8_13
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DOI: https://doi.org/10.1007/978-3-319-63706-8_13
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