Macroeconomic determinants of NPLs and strategic default

Michail Giannoulakis

No 51492, Greenwich Papers in Political Economy from University of Greenwich, Greenwich Political Economy Research Centre

Abstract: This paper explores the macroeconomic impact of strategic default on non-performing loans (NPLs), addressing a key gap in existing research. Using a novel strategic default proxy developed via principal component analysis (PCA) and a dynamic panel data model, the study reveals a complex temporal relationship. Initially, shocks to strategic defaults lead to a short-term decline in NPL growth, reflecting financial adjustments or delays in recognition, but are followed by a persistent upward trend that significantly weakens loan portfolio quality and financial stability. These findings highlight the need for timely interventions to address misleading short-term stability and mitigate long-term risks. The study also underscores the importance of incorporating behavioural and institutional factors, such as uncertainty and banking leverage, into NPL modelling.

Keywords: non-performing loans; strategic default; financial contagion; bank leverage; economic uncertainty; principal component analysis; Panel VAR (search for similar items in EconPapers)
Date: 2025-07-15
New Economics Papers: this item is included in nep-fdg
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