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Non-performing loans and the supply of bank credit: evidence from Italy

Author

Listed:
  • Matteo Accornero

    (Bank of Italy)

  • Piergiorgio Alessandri

    (Bank of Italy)

  • Luisa Carpinelli

    (Bank of Italy)

  • Alberto Maria Sorrentino

    (Bank of Italy)

Abstract

We use an extensive loan-level dataset to study the influence of non-performing loans (NPLs) on the supply of bank credit to nonfinancial firms in Italy between 2008 and 2015. We use time-varying firm fixed effects to control for shifts in demand and changes in borrower characteristics, and we also resort to the supervisory interventions associated to the 2014 Asset Quality Review to identify exogenous variations in the banks� NPL ratios. We find that banks� lending behavior is not causally affected by the level of NPL ratios: the negative correlation between NPL ratios and credit growth in our data is mostly generated by changes in firms� conditions and a contraction in their demand for credit. However, the exogenous emergence of NPLs and the associated increase in provisions can cause a negative adjustment in credit supply.

Suggested Citation

  • Matteo Accornero & Piergiorgio Alessandri & Luisa Carpinelli & Alberto Maria Sorrentino, 2017. "Non-performing loans and the supply of bank credit: evidence from Italy," Questioni di Economia e Finanza (Occasional Papers) 374, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_374_17
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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2017-0374/QEF_374.pdf
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    More about this item

    Keywords

    credit register; credit risk; credit supply; non-performing loans;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G00 - Financial Economics - - General - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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