Munich Personal RePEc Archive

Non-Performing Loans (ΝPLs) in a Crisis Economy: Long-Run Equilibrium Analysis with a Real-Time VEC Model for Greece (2001-2015)

Konstantakis, Konstantinos N. and Michaelides, Panayotis G. and Vouldis, Angelos T. (2016): Non-Performing Loans (ΝPLs) in a Crisis Economy: Long-Run Equilibrium Analysis with a Real-Time VEC Model for Greece (2001-2015). Published in: Physica A: Statistical Mechanics and its Applications , Vol. C, No. 451 (2016): pp. 149-161.

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Abstract

Αs a result of domestic and international factors, the Greek economy faced a severe crisis which is directly comparable only to the Great Recession. In this context, a prominent victim of this situation was the country‟s banking system. This paper attempts to shed light on the determining factors of non-performing loans in the Greek banking sector. The analysis presents empirical evidence from the Greek economy, using aggregate data on a quarterly basis, in the time period 2001-2015, fully capturing the recent recession. In this work, we use a relevant econometric framework based on a real time Vector Autoregressive (VAR) - Vector Error Correction (VEC) model, which captures the dynamic interdependencies among the variables used. Consistent with international evidence, the empirical findings show that both macroeconomic and financial factors have a significant impact on non-performing loans in the country. Meanwhile, the deteriorating credit quality feeds back into the economy leading to a self-reinforcing negative loop.

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