Non-performing loans in European systemic and non-systemic banks

Ozili, Peterson K (2019): Non-performing loans in European systemic and non-systemic banks. Forthcoming in:

Abstract

The distinction between GSIBs (systemic banks) and non GSIBs (non-systemic banks) is driven by policy reasons. I examine the behaviour of non-performing loans in European systemic and non-systemic banks, and find that more profitable banks witness higher non-performing loans regardless of whether they are systemic or non-systemic. Systemic banks have fewer non-performing loans during economic booms and during periods of increased lending while non-systemic banks experience higher NPLs during periods of increased lending. I also observe that European non-systemic banks that exceed regulatory capital requirements have higher NPLs. In the post-2007 financial crisis period, the NPL of systemic banks is negatively associated with the economic cycle which imply that the NPL of systemic banks is procyclical with the state of the economy, and the NPL of systemic banks are positively associated with loan supply and bank profitability. On the other hand, the NPL of non-systemic banks is negatively associated with regulatory capital ratios, and is positively associated with bank profitability for non-systemic banks in the post-2007 financial crisis period. The findings have implications.

• Item Type: MPRA Paper
• Language: English
• Keywords: credit risk, nonperforming loans, systemic banks, systemic risk, impaired loans, asset quality; European banks, Europe, bank profitability.
• Subjects: G - Financial Economics > G0 - General > G01 - Financial Crises; G - Financial Economics > G0 - General > G02 - Behavioral Finance: Underlying Principles; G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G2 - Financial Institutions and Services > G23 - Non-bank Financial Institutions ; Financial Instruments ; Institutional Investors; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill

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