Leading indicators of non-performing loans in Greece: the information content of macro-, micro- and bank-specific variables

Angelos Vouldis and Dimitrios Louzis

Empirical Economics, 2018, vol. 54, issue 3, No 12, 1187-1214

Abstract: Abstract We examine the information content of a unique set of macroeconomic, bank-specific, market and credit registry variables as regards their ability to forecast non-performing loans using a panel data set of nine Greek banks. We distinguish between business, consumer and mortgage loans and investigate their differences with respect to their optimal predictors. The quasi-AIM approach (Carson et al. in Int J Forecast 27:923–941, 2010) is utilized in order to take into account heterogeneity across banks and minimize estimation uncertainty. In addition, we calculate a number of forecasting measures in order to take into account the policy makers’ preferences. We find that market variables, specifically the supermarket sales, confidence indices for the services and construction sector and the business sentiment index represent good forecasting variables for most categories of NPLs. In addition, industrial production is the optimal predictor for consumer NPLs and imports for business NPLs. Finally, bank-specific variables represent top-performing leading indicators for business NPLs. Our results have significant implications for stress-testing credit risk in a top-down manner and for supervisory and macro-prudential policy design.

Keywords: Credit risk; Non-performing loans forecasting; Disaggregation; Panel data; Stress testing (search for similar items in EconPapers)
JEL-codes: C53 G01 G21 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (10)

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DOI: 10.1007/s00181-017-1247-0

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