How Do Banks Respond to Non-Performing Loans?
Brunella Bruno () and
Immacolata Marino ()
CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy
We exploit the first ECB Asset Quality Review (AQR) as a quasi-experiment to investigate the effect of changes in non-performing loans (NPLs) on banks' balance sheets. We show that AQR banks with higher unexpected changes to their NPLs deleverage and reduce lending more than non-AQR banks. The effect is non-linear, and stronger in AQR banks located in high-NPL countries. If we focus only on AQR banks, we find that larger NPL adjustments have negative compositional effects on lending in the sample of reviewed banks from low-NPL countries, and negative size effects in the sample from high-NPL countries.
Keywords: NPLs; asset quality; bank lending; AQR (search for similar items in EconPapers)
JEL-codes: G21 G01 (search for similar items in EconPapers)
Date: 2018-11-09, Revised 2020-05-02
New Economics Papers: this item is included in nep-ban and nep-eec
Note: A previous version has been circulated under the title “How Banks Respond to NPLs? Evidence from the Euro Area".
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:513
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