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Empirical Determinants of the Non-Performing Loans in the Cypriot Banking System

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  • Christos Christodoulou-Volos
  • Andreas Hadjixenophontos

Abstract

High levels of nonperforming loans (NPLs) weigh heavily on private investment and the ability of banks to meet their basic financing role in society. Using linear regression, the paper examines the factors that affect the level of credit risk of the Cypriot commercial banks as expressed by the percentage of non-performing loans. Like similar studies in the international literature, macroeconomic and institutional/microeconomic factors were utilized to construct and test an appropriate predictive model for NPLs. This empirical study spans the start of the global financial crisis in the fourth quarter of 2008 and the resulting recession of the economy in the second quarter of 2014. All macroeconomic indicators used in the creation and testing of five prediction models were found to affect NPLs significantly, with public debt as a percentage of GDP being the most significantfactor.JEL classification numbers: E32, E44, E51, E52, G10, G21Keywords: Banks, nonperforming loans, business fluctuations, financial stability

Suggested Citation

  • Christos Christodoulou-Volos & Andreas Hadjixenophontos, 2017. "Empirical Determinants of the Non-Performing Loans in the Cypriot Banking System," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 6(4), pages 1-1.
    • Handle: RePEc:spt:fininv:v:6:y:2017:i:4:f:6_4_1
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    More about this item

    Keywords

    banks; nonperforming loans; business fluctuations; financial stability;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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