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Non-performing loans and the supply of bank credit: evidence from Italy

Matteo Accornero (), Piergiorgio Alessandri, Luisa Carpinelli () and Alberto Maria Sorrentino ()
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Matteo Accornero: Bank of Italy
Luisa Carpinelli: Bank of Italy
Alberto Maria Sorrentino: Bank of Italy

No 374, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We use an extensive loan-level dataset to study the influence of non-performing loans (NPLs) on the supply of bank credit to nonfinancial firms in Italy between 2008 and 2015. We use time-varying firm fixed effects to control for shifts in demand and changes in borrower characteristics, and we also resort to the supervisory interventions associated to the 2014 Asset Quality Review to identify exogenous variations in the banks’ NPL ratios. We find that banks’ lending behavior is not causally affected by the level of NPL ratios: the negative correlation between NPL ratios and credit growth in our data is mostly generated by changes in firms’ conditions and a contraction in their demand for credit. However, the exogenous emergence of NPLs and the associated increase in provisions can cause a negative adjustment in credit supply.

Keywords: credit register; credit risk; credit supply; non-performing loans (search for similar items in EconPapers)
JEL-codes: E51 E58 G00 G21 (search for similar items in EconPapers)
Date: 2017-03
New Economics Papers: this item is included in nep-ban, nep-eur and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_374_17

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