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Non-performing loans, governance indicators and systemic liquidity risk: evidence from Greece

Author

Listed:
  • Dimitrios Anastasiou

    (Athens University of Economics and Business and Alpha Bank)

  • Zacharias Bragoudakis

    () (Bank of Greece)

  • Ioannis Malandrakis

    (Athens University of Economics and Business)

Abstract

In this study we propose a new determinant of non-performing loans for the case of the Greek banking sector. We employ aggregate yearly data for the period 1996-2016 and we conduct a Principal Component Analysis for all the Worldwide Governance Indicators (WGI) for Greece, aiming to isolate the common component and thus to create the GOVERNANCE indicator. We find that the GOVERNANCE indicator is a significant determinant of Greek banks’ non-performing loans indicating that both political and governance factors impact on the level of the Greek non-performing loans. An additional variable that also has a statistically significant impact on the level of Greek non-performing loans, when combined with WGI in the dynamic specification of our model, is systemic liquidity risk. Our results could be of interest to policy makers and regulators as a macro prudential policy tool.

Suggested Citation

  • Dimitrios Anastasiou & Zacharias Bragoudakis & Ioannis Malandrakis, 2019. "Non-performing loans, governance indicators and systemic liquidity risk: evidence from Greece," Working Papers 260, Bank of Greece.
  • Handle: RePEc:bog:wpaper:260
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    References listed on IDEAS

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    More about this item

    Keywords

    Credit risk; Greek banking sector; Non-performing loans; Systemic liquidity risk; Worldwide Governance Indicators.;

    JEL classification:

    • 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
    • G2 - Financial Economics - - Financial Institutions and Services
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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