Governance, business model and size as drivers of loan’s portfolio management and provisioning in European banks

Renata Karkowska (), Zbigniew Korzeb (), Anna Matysek () and Paweł Niedziółka ()
Additional contact information
Renata Karkowska: University of Warsaw
Zbigniew Korzeb: Bialystok University of Technology
Anna Matysek: Department of International Competitiveness, Poznan University of Economics and Business
Paweł Niedziółka: SGH Warsaw School of Economics

Journal of Banking Regulation, 2025, vol. 26, issue 3, No 17, 590-609

Abstract: Abstract The quality of loan portfolios plays a critical role in ensuring the stability of banks, as its deterioration can contribute to financial crises. Therefore, it is essential to analyse the factors influencing not only the share of non-performing loans in bank portfolios but also the provisioning policies adopted to mitigate credit risk. This article aims to examine the determinants of loan portfolio quality in European banks, as well as the extent to which provisions cover these portfolios. Our research is based on a sample of 197 banks from 31 European countries and the period from 2011 to 2022. The study employs dynamic panel regression models with Generalised Method of Moments estimators. We employ a comprehensive framework for credit risk management, incorporating three fundamental indicators: non-performing loans, provision coverage, and the cost of risk. Our empirical findings suggest that diversifying income sources beyond traditional lending activities can improve the effectiveness of credit risk management. Furthermore, larger banks demonstrate superior capability in managing non-performing loans and mitigating risk-related costs. This effect is particularly pronounced in institutions with a strategic investor, suggesting a potential advantage in governance and risk oversight. These insights provide valuable guidance for policymakers and financial institutions in managing credit risk and ensuring financial stability.

Keywords: Banking; Credit risk; Portfolio quality; Provisioning; Non-performing loans; Regulatory policy (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1057/s41261-025-00277-y Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
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:pal:jbkreg:v:26:y:2025:i:3:d:10.1057_s41261-025-00277-y

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/41261/PS2

DOI: 10.1057/s41261-025-00277-y

Access Statistics for this article

Journal of Banking Regulation is currently edited by Dalvinder Singh

More articles in Journal of Banking Regulation from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().