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Macroeconomic determinants of non-performing loans

Author

Listed:
  • B. De Backer

    (National Bank of Belgium)

  • Ph. Du Caju

    (National Bank of Belgium)

  • M. Emiris

    (National Bank of Belgium)

  • Ch. Van Nieuwenhuyze

    (National Bank of Belgium)

Abstract

The article analyses the credit risk in Belgium on the basis of bank asset quality indicators (i.e. nonperformingloans, NPLs) and Central Credit Register data (i.e. payment arrears). These indicators show a relatively high asset quality in Belgium notwithstanding the further increase of the debt ratio of the non-financial private sector over the last years. Moreover, the distribution of households’ assets and debt reveals some ‘pockets of risk’ as a significant proportion of households spend a large part of their income on debt payments and that part of outstanding debt is not well covered by financial assets. Against this background, the article aims to explain the variation in (mortgage) credit risk by means of both macroeconomic and structural determinants such as the business cycle and loan or bank characteristics. The findings show a clear link between macroprudential instruments – such as the debt-service-to-income (DSTI) ratio – and the probability of default (PD). Econometric results confirm that both structural and macroeconomic variables explain the variation in default rates on mortgage loans. Finally, there seems to be a feedback effect of NPLs on macroeconomic conditions in countries where the NPL ratio is high. While a deleveraging process and a reduction in the nonfinancial private sector’s interest charges could help to reduce the NPL stock, additional structural reforms in those countries might be needed.

Suggested Citation

  • B. De Backer & Ph. Du Caju & M. Emiris & Ch. Van Nieuwenhuyze, 2015. "Macroeconomic determinants of non-performing loans," Economic Review, National Bank of Belgium, issue iii, pages 47-65, December.
    • Handle: RePEc:nbb:ecrart:y:2015:m:december:i:iii:p:47-65
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    File URL: https://www.nbb.be/en/node/355176
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    References listed on IDEAS

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    1. J. Boeckx & P. Butzen & N. Cordemans & S. Ide, 2015. "Deflation in Japan, Abenomics and lessons for the euro area," Economic Review, National Bank of Belgium, issue i, pages 100-124, June.
    2. Nobuo Inaba & Takashi Kozu & Toshitaka Sekine & Takashi Nagahata, 2005. "Non-performing loans and the real economy: Japan’s experience," BIS Papers chapters, in: Bank for International Settlements (ed.), Investigating the relationship between the financial and real economy, volume 22, pages 106-27, Bank for International Settlements.
    3. Ph. Du Caju & Th. Roelandt & Chr. Van Nieuwenhuyze & M.-D. Zachary, 2014. "Household debt: evolution and distribution," Economic Review, National Bank of Belgium, issue ii, pages 61-81, September.
    4. Stijn Ferrari & Patrick Van Roy & Cristina Vespro, 2011. "Stress testing credit risk: modelling issues," Financial Stability Review, National Bank of Belgium, vol. 9(1), pages 105-120, June.
    5. Anil K Kashyap & Owen A. Lamont & Jeremy C. Stein, 1994. "Credit Conditions and the Cyclical Behavior of Inventories," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(3), pages 565-592.
    6. Ph. Du Caju, 2013. "Structure and distribution of household wealth: An analysis based on the HFCS," Economic Review, National Bank of Belgium, issue ii, pages 41-62, September.
    7. Vicente Salas & Jesús Saurina, 2002. "Credit Risk in Two Institutional Regimes: Spanish Commercial and Savings Banks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 22(3), pages 203-224, December.
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    Citations

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    Cited by:

    1. Ph. Du Caju, 2016. "The distribution of household wealth in Belgium : initial findings of the second wave of the Household Finance and Consumption Survey (HFCS)," Economic Review, National Bank of Belgium, issue ii, pages 27-43, september.
    2. Ch. Piette & M.-D. Zachary, 2015. "Sensitivity to the crisis of SME financing in Belgium," Economic Review, National Bank of Belgium, issue iii, pages 31-45, December.
    3. Philip Du Caju, 2017. "Pockets of risk in the Belgian mortgage market : Evidence from the Household Finance and Consumption Survey (HFCS)," Working Paper Research 332, National Bank of Belgium.
    4. Ruba Bsoul & Maysa’a Milhem & Mahmoud Odat, 2022. "Determinants of Banks’ Credit Risk: Evidence from Jordanian Banks Listed on Amman Stock Exchange," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 11, September.
    5. P. Reusens & Ch. Warisse, 2018. "House prices and economic growth in Belgium," Economic Review, National Bank of Belgium, issue iv, pages 81-106, december.
    6. Philip Du Caju, 2017. "Pockets of risk in the Belgian mortgage market - Evidence from the Household Finance and Consumption survey," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Data needs and Statistics compilation for macroprudential analysis, volume 46, Bank for International Settlements.

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    More about this item

    Keywords

    non-performing loans; credit risk; debt distribution; macroprudential policy;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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