Do Non-Performing Loans Influence the Profitability of Banks? Evidence from a European Banking Group

Adela Socol () and Nina Sinitin ()
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Adela Socol: “1st of December 1918†University of Alba Iulia
Nina Sinitin: “1st of December 1918†University of Alba Iulia

Ovidius University Annals, Economic Sciences Series, 2021, vol. XXI, issue 1, 823-832

Abstract: Banking system in the time of the COVID-19 pandemic is likely to be particularly affected especially in terms of profitability. The crisis has revealed various economic and even psychological mechanisms which can contribute to the increase of Non-Performing Loans (NPL). This paper intends to find if there is any significant relationship between Return on allocated capital, as a marker for banking profitability and NPL coverage ratio. We include in the model developed on the basis OLS method (with robust standard errors, consistent with panel-specific autocorrelation and heteroskedasticity), a few other explanatory variables. Our research is based on the Erste Group database 2016-2021. The empirical results reveal that there is a negative and a significant relationship between Return on allocated capital and first two variables - NPL coverage ratio and Cost to income ratio - while GDP growth have a positive impact on Return on allocated capital.

Keywords: banks; profitability; COVID-19; loans; capital (search for similar items in EconPapers)
JEL-codes: C23 F62 G21 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:ovi:oviste:v:xxi:y:2021:i:1:p:823-832

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