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Macroeconomic determinants of bad loans: evidence from Italian banks


  • Marcello Bofondi

    () (Banca d'Italia)

  • Tiziano Ropele

    () (Banca d'Italia)


In this paper we use a single-equation time series approach to examine the macroeconomic determinants of banks� loan quality in Italy in the past twenty years, as measured by the ratio of new bad loans to the outstanding amount of loans in the previous period. We analyse the quality of loans to households and firms separately on the grounds that macroeconomic variables may affect these two classes of borrowers differently. According to our estimated models: i) the quality of lending to households and firms can be explained by a small number of macroeconomic variables mainly relating to the general state of the economy, the cost of borrowing and the burden of debt; ii) changes in macroeconomic conditions generally affect loan quality with a lag; and iii) the out-of-sample prediction accuracy of the models is quite satisfactory and proved to be robust to the recent financial crisis.

Suggested Citation

  • Marcello Bofondi & Tiziano Ropele, 2011. "Macroeconomic determinants of bad loans: evidence from Italian banks," Questioni di Economia e Finanza (Occasional Papers) 89, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:opques:qef_89_11

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    2. Ahlem Selma Messai & Fathi Jouini, 2013. "Micro and Macro Determinants of Non-performing Loan," International Journal of Economics and Financial Issues, Econjournals, vol. 3(4), pages 852-860.
    3. Albertazzi, Ugo & Ropele, Tiziano & Sene, Gabriele & Signoretti, Federico Maria, 2014. "The impact of the sovereign debt crisis on the activity of Italian banks," Journal of Banking & Finance, Elsevier, vol. 46(C), pages 387-402.
    4. International Monetary Fund, 2013. "Italy; Technical Note on the Financial Situation of Italian Households and Non-Financial Corporations and Risks to the Banking System," IMF Staff Country Reports 13/348, International Monetary Fund.
    5. Vasiliki Makri, 2016. "Towards an Investigation of Credit Risk Determinants in Eurozone Countries," Journal of Accounting and Management Information Systems, Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 15(1), pages 27-57, March.
    6. Caporale, Guglielmo Maria & Di Colli, Stefano & Lopez, Juan Sergio, 2014. "Bank lending procyclicality and credit quality during financial crises," Economic Modelling, Elsevier, vol. 43(C), pages 142-157.
    7. Aleš Melecký & Martin Melecký & Monika Šulganová, 2015. "Úvěry v selhání a makroekonomika: modelování systémového kreditního rizika v České republice
      [Non-Performing Loans and The Macroeconomy: Modeling the Systemic Credit Risk in the Czech Republic]
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    9. Mohaddes, Kamiar & Raissi, Mehdi & Weber, Anke, 2017. "Can Italy grow out of its NPL overhang? A panel threshold analysis," Economics Letters, Elsevier, vol. 159(C), pages 185-189.
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    12. Us, Vuslat, 2017. "Dynamics of non-performing loans in the Turkish banking sector by an ownership breakdown: The impact of the global crisis," Finance Research Letters, Elsevier, vol. 20(C), pages 109-117.
    13. Love, Inessa & Turk Ariss, Rima, 2014. "Macro-financial linkages in Egypt: A panel analysis of economic shocks and loan portfolio quality," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 28(C), pages 158-181.
    14. Michele Benvenuti & Luca Casolaro & Emanuele Ciani, 2017. "Informal loans, liquidity constraints and local credit supply: evidence from Italy," Temi di discussione (Economic working papers) 1099, Bank of Italy, Economic Research and International Relations Area.
    15. Mwinlaaru, Peter Yeltulme & Ofori, Isaac Kwesi & Adiyiah, Kwadwo Agyeman & Idun, Anthony Adu-Asare, 2016. "Non-Performing Loans and Universal Bank’s Profitability," MPRA Paper 82902, University Library of Munich, Germany.
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    17. Iulia Andreea Bucur & Simona Elena Dragomirescu, 2014. "The Influence Of Macroeconomic Conditions On Credit Risk: Case Of Romanian Banking System," Studies and Scientific Researches. Economics Edition, "Vasile Alecsandri" University of Bacau, Faculty of Economic Sciences, issue 19.
    18. Vuslat Us, 2016. "Determinants of Non-Performing Loans in the Turkish Banking Sector : What Has Changed After the Global Crisis?," CBT Research Notes in Economics 1627, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    19. Piotr Wdowiński, 2014. "Makroekonomiczne czynniki ryzyka kredytowego w sektorze bankowym w Polsce," Gospodarka Narodowa, Warsaw School of Economics, issue 4, pages 55-77.
    20. repec:eee:riibaf:v:42:y:2017:i:c:p:242-248 is not listed on IDEAS
    21. Gila-Gourgoura, E. & Nikolaidou, E., 2017. "Credit Risk Determinants in the Vulnerable Economies of Europe: Evidence from the Spanish Banking System," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Eastern Macedonia and Thrace Institute of Technology (EMATTECH), Kavala, Greece, vol. 10(1), pages 60-71, March.
    22. Anastasiou, Dimitrios, 2017. "The Interplay between Ex-post Credit Risk and the Cycles: Evidence from the Italian banks," MPRA Paper 79470, University Library of Munich, Germany.
    23. Baselga-Pascual, Laura & Trujillo-Ponce, Antonio & Cardone-Riportella, Clara, 2015. "Factors influencing bank risk in Europe: Evidence from the financial crisis," The North American Journal of Economics and Finance, Elsevier, vol. 34(C), pages 138-166.
    24. Sorin Daniel MANOLE & Corina PETRESCU & Ramona Ioana VLADA, 2016. "Determinants of household loans," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(609), W), pages 89-102, Winter.
    25. Dimitrios Anastasiou & Helen Louri & Mike G. Tsionas, 2016. "Non-performing loans in the euro area: are core-periphery banking markets fragmented?," Working Papers 219, Bank of Greece.

    More about this item


    bad loans; macroeconomic determinants; Italian banking system;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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