Empirical Determinants of the Non-Performing Loans in the Cypriot Banking System
Christos Christodoulou-Volos and
Journal of Finance and Investment Analysis, 2017, vol. 6, issue 4, 1
High levels of nonperforming loans (NPLs) weigh heavily on private investmentÂ and the ability of banks to meet their basic financing role in society. Using linearÂ regression, the paper examines the factors that affect the level of credit risk of theÂ Cypriot commercial banks as expressed by the percentage of non-performingÂ loans. Like similar studies in the international literature, macroeconomic andÂ institutional/microeconomic factors were utilized to construct and test anÂ appropriate predictive model for NPLs. This empirical study spans the start of theÂ global financial crisis in the fourth quarter of 2008 and the resulting recession ofÂ the economy in the second quarter of 2014. All macroeconomic indicators used inÂ the creation and testing of five prediction models were found to affect NPLsÂ significantly, with public debt as a percentage of GDP being the most significantfactor.JEL classification numbers: E32, E44, E51, E52, G10, G21Keywords: Banks, nonperforming loans, business fluctuations, financial stability
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