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

Peterson Ozili

Journal of Financial Economic Policy, 2019, vol. 12, issue 3, 409-424

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.

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 (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
Working Paper: Non-performing loans in European systemic and non-systemic banks (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:jfeppp:jfep-02-2019-0033

DOI: 10.1108/JFEP-02-2019-0033

Access Statistics for this article

Journal of Financial Economic Policy is currently edited by Prof Franklin Mixon

More articles in Journal of Financial Economic Policy from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().