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Determinants of Non-Performing Loans: An Empirical Analysis Across Major Sectors

Author

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  • Nicolas Reigl

Abstract

This paper investigates the determinants of non-performing bank loans (NPLs) across six key sectors in Estonia from 2005 to 2023, employing a dynamic linear regression model. The analysis focuses on agriculture, manufacturing, construction, wholesale and retail trade, transportation, and real estate. The model incorporates both macroeconomic factors like unemployment and real GDP growth, and sector-specific financial variables including sectorspecific bank lending interest rates and profitability indicators. The results reveal strong persistence in NPLs across all sectors, with business cycle indicators, particularly the unemployment rate, consistently explaining variations in NPLs, albeit with varying impact across sectors. Sector-specific variables generally play a less important role, except in the wholesale and retail trade sector, where leverage and profitability correlate more significantly with credit risk.

Suggested Citation

  • Nicolas Reigl, 2025. "Determinants of Non-Performing Loans: An Empirical Analysis Across Major Sectors," Bank of Estonia Working Papers wp2025-01, Bank of Estonia, revised 06 May 2025.
    • Handle: RePEc:eea:boewps:wp2025-01
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    File URL: http://www.bankofestonia.info/pub/en/dokumendid/publikatsioonid/seeriad/uuringud//https://haldus.eestipank.ee/sites/default/files/2025-03/wp_01_2025.pdf
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    More about this item

    Keywords

    non-performing loans; banking sector; corporate debt; business cycles;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • 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

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