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Non-performing loans in the euro area: Does bank market power matter?

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  • Karadima, Maria
  • Louri, Helen

Abstract

In this study, we investigate the impact of bank market power on the change in NPL ratios in the euro area over the period 2005–2017 by employing a penalized quantile regression model for dynamic panel data. The results suggest that post-crisis consolidation facilitates the faster reduction of NPLs, especially in the euro area periphery countries, while competition discourages the growth of new NPLs. In addition, the presence of foreign banks is beneficial on its own and with respect to containing market power effects. Finally, while commercial banks create more NPLs, market power plays a moderating role.

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  • Karadima, Maria & Louri, Helen, 2020. "Non-performing loans in the euro area: Does bank market power matter?," International Review of Financial Analysis, Elsevier, vol. 72(C).
    • Handle: RePEc:eee:finana:v:72:y:2020:i:c:s1057521920302374
    DOI: 10.1016/j.irfa.2020.101593
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    3. Miguel Cantillo, 2023. "Imperfect bank competition, borrower adverse selection, and the transmission of monetary policy," Working Papers 202301, Universidad de Costa Rica, revised Mar 2023.
    4. Hardouvelis, Gikas A. & Vayanos, Dimitri, 2023. "The Greek economic crisis and the banks," LSE Research Online Documents on Economics 117880, London School of Economics and Political Science, LSE Library.
    5. Petr Jakubik & Eyup Kadioglu, 2022. "Factors affecting bank loan quality: a panel analysis of emerging markets," International Economics and Economic Policy, Springer, vol. 19(3), pages 437-458, July.
    6. Karadima, Maria & Louri, Helen, 2021. "Determinants of non-performing loans in Greece: the intricate role of fiscal expansion," LSE Research Online Documents on Economics 110741, London School of Economics and Political Science, LSE Library.
    7. Andreea Maura Bobiceanu & Ioana Georgiana Fä‚Rcaè˜, 2022. "Covid Crisis Effects On Non-Performing Loans In The Romanian Banking Market," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 30, pages 25-37, December.
    8. Aamir Aijaz Syed & Muhammad Abdul Kamal & Assad Ullah & Simon Grima, 2022. "An Asymmetric Analysis of the Influence That Economic Policy Uncertainty, Institutional Quality, and Corruption Level Have on India’s Digital Banking Services and Banking Stability," Sustainability, MDPI, vol. 14(6), pages 1-21, March.
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    12. Gikas A. Hardouvelis, 2021. "Financial Crisis and Non-performing Exposures in Greece," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 159, Hellenic Observatory, LSE.
    13. Jiajia, Liu & Kun, Guo & Fangcheng, Tang & Yahan, Wang & Shouyang, Wang, 2023. "The effect of the disposal of non-performing loans on interbank liquidity risk in China: A cash flow network-based analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 105-119.
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    More about this item

    Keywords

    Non-performing loans; Competition; Concentration; Penalized instrumental variable quantile regression with fixed effects estimator;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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