Combining Economic and Cultural Perspectives on NPL Analysis: A Case Study

Kanellos Toudas,Panagiota Kritikou,Paraskevi Boufounou

doi:10.35995/jbafp3010008

Abstract

This paper attempts to empirically investigate and interpret the NPLs of EU countries based on a combination of economic and socio-cultural characteristics, as depicted by Hofstede’s “6 Cultural Dimensions”. Estimates are made for the period 2000–2019 for eight EU countries, four of which are in Southern Europe (Greece, Italy, Spain, Portugal) and four are in Central Europe (Germany, France, the Netherlands and Belgium). Special emphasis is placed on Greece, due to the importance of NPLs in this country. The findings are in accordance with those of previous relevant research, and the combination of economic and cultural characteristics provided a more in-depth NPL analysis.

Highlights

The current economic crisis and its consequences have created a large number of non-performing loans, which have affected and continue to negatively affect banks, negatively affecting the recovery and growth potential of countries, and according to the European Central Bank’s banking supervision
Laitinen and Suvas (2016) studied the data of thousands of non-failed and failed firms from 26 European countries in order to investigate the influence of Hofstede’s Cultural Dimensions on financial distress prediction, and in particular, the degree of impact of Hofstede’s theory on the comparability of financial distress prediction models in all European countries. They combined the cultural dimensions power distance (PDI), individualism vs. collectivism (IDV), masculinity vs. femininity (MAS), and uncertainty avoidance (UAI) with several financial distress models that are used to give a warning of possible failure
We proceeded by comparing the performance non-performing loans (NPLs) in countries of Southern Europe and Central Europe, and we further explained Greece’s NPLs

Summary

Introduction

The current economic crisis and its consequences have created a large number of non-performing loans, which have affected and continue to negatively affect banks, negatively affecting the recovery and growth potential of countries, and according to the European Central Bank’s banking supervision. Perspect., 2021, 3(1): 8; doi:10.35995/jbafp3010008 page 2 relevant studies show that the increase in non-performing loans (NPLs) is influenced by economic factors, even during crises. Empirical econometric estimates on NPLs using economic factors by country were conducted for the period 2000–2019, and the findings were compared to those of the recent relevant literature. The findings are presented and compared to previous relevant literature findings and discussed in the light of a combined economic and cultural perspective. The main conclusions are summarized, placing special emphasis on Greece, and further research options are listed

Literature Review

Methodology and Results

Uncertainty Avoidance—UAI

Indulgence—IVR

Conclusions