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The evolution and determinants of the non-performing loan burden in Italian banking

Author

Listed:
  • Pancotto, Livia
  • ap Gwilym, Owain
  • Williams, Jonathan

Abstract

We investigate the factors influencing Non-Performing Loans (NPLs) in the Italian banking sector from 2011 to 2017, a period marked by significant challenges. Using dynamic panel data methods and considering both bank-specific and macroeconomic variables, our empirical analysis reveals the complexity of NPL volumes in Italy. Our findings highlight that better capitalised banks tend to exhibit lower levels of NPLs, indicating reduced incentives for engaging in riskier practices. We document an inverse relationship between credit growth and NPLs, suggesting a potential outcome of demand-driven credit expansion. Additionally, the countercyclical nature of NPL stocks is evident, with banks' NPL volumes influenced by the economic conditions of the country.

Suggested Citation

  • Pancotto, Livia & ap Gwilym, Owain & Williams, Jonathan, 2024. "The evolution and determinants of the non-performing loan burden in Italian banking," Pacific-Basin Finance Journal, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:pacfin:v:84:y:2024:i:c:s0927538x2400057x
    DOI: 10.1016/j.pacfin.2024.102306
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    More about this item

    Keywords

    Non-performing loans; Financial stability; Dynamic panel data; GMM estimations; Italian banking system;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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