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Cover your assets: non-performing loans and coverage ratios in Europe

Bias-corrected matching estimators for average treatment effects

Lucia Alessi, Brunella Bruno, Elena Carletti, Katja Neugebauer and Isabella Wolfskeil

Economic Policy, 2021, vol. 36, issue 108, 685-733

Abstract: SUMMARYWe analyse the determinants of coverage ratios and their components [non-performing loans (NPLs) and loss loan reserves] in a large sample of European banks. We find that bank-specific factors, particularly credit risk variables (including forward-looking indicators) and capitalization, matter the most. Coverage ratios adjust insufficiently as asset quality deteriorates, except in high-NPL banks. Capitalization has a positive effect on coverage ratio, pointing to a complementarity between the two buffers. At the country level, specific macroprudential levers and developing NPL secondary markets enhance coverage ratios. Our findings emphasize the importance of micro oversight and call for more stringent macro policies in high-NPL countries.

JEL-codes: G21 G28 M41 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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