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Non-performing loans, governance indicators and systemic liquidity risk: evidence from Greece

Dimitrios Anastasiou (), Zacharias Bragoudakis () and Ioannis Malandrakis
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Zacharias Bragoudakis: Bank of Greece
Ioannis Malandrakis: Athens University of Economics and Business

No 260, Working Papers from Bank of Greece

Abstract: In this study we propose a new determinant of non-performing loans for the case of the Greek banking sector. We employ aggregate yearly data for the period 1996-2016 and we conduct a Principal Component Analysis for all the Worldwide Governance Indicators (WGI) for Greece, aiming to isolate the common component and thus to create the GOVERNANCE indicator. We find that the GOVERNANCE indicator is a significant determinant of Greek banks’ non-performing loans indicating that both political and governance factors impact on the level of the Greek non-performing loans. An additional variable that also has a statistically significant impact on the level of Greek non-performing loans, when combined with WGI in the dynamic specification of our model, is systemic liquidity risk. Our results could be of interest to policy makers and regulators as a macro prudential policy tool.

Keywords: Credit risk; Greek banking sector; Non-performing loans; Systemic liquidity risk; Worldwide Governance Indicators. (search for similar items in EconPapers)
JEL-codes: C51 G21 G2 G38 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-eec and nep-rmg
Date: 2019-05
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