Bad Loans and Resource Allocation in Crisis Years: Evidence from European Banks
29 Pages Posted: 18 Apr 2017
Date Written: February 6, 2017
The aim of this study is to explore the relation between loan portfolio quality and lending in European banks over 2005-2014. We focus on lending behavior of banks from distressed countries since the Euro sovereign debt crisis. Our results confirm the existence of a negative nexus between poor loan quality and lending, since a higher NPL ratio explains a reduced loan growth and a lower allocation to loans at the advantage of government debt (as a percentage of total assets). Such an impact on lending and reallocation effect are strong and consistent across specifications and over and above other factors that may affect credit supply.
Keywords: bad loans, NPLs, non-performing loans, bank lending, crisis
JEL Classification: G20, G21, G01
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