Abstract
Purpose: The purpose of this paper is to investigate the determinants of non-performing loans in the Spanish banking system over the period 1997Q4–2015Q3. This timeframe includes not only the booming period for the Spanish economy but also an extended post-crises interval which is missing from other studies for Spain. Design/methodology/approach: Using quarterly data from the Central Bank of Spain and from the European Central Bank, the paper employs the ARDL approach to cointegration to identify the existence of a long or short-run relationship between NPLs and a set of macroeconomic, bank-related and country-specific indicators. Findings: Findings from the ARDL model indicate that macroeconomic, bank-specific variables and interest rates are important determinants of non-performing loans in the Spanish banking system. Specifically, the real GDP, the Spanish long-term government bond yield, the return on equity, the total credit granted by the Spanish banks and their capital to assets ratio, explain credit risk in Spain both in the short and the long run. Research limitations/implications: Data on the bank-specific variables are for the whole banking industry, and not for individual banks. If such data were available, a comparison of the credit risk determinants between small/ big banks, private/public or domestic/foreign could be possibly made. Originality/value: These findings provide useful evidence to bank managers and policymakers in dealing with loans' defaults in Spain and in undertaking crucial reforms to stabilize the economy.
Highlights
The strong belief that financial distress may contract economic growth, has inspired academics to investigate those factors that may trigger a banking crisis (Agnello et al 2011; Chaibi and Ftiti 2015; Islami and Kurz-Kim, 2014)
The real GDP, the Spanish long-term government bond yield, the return on equity, the total credit granted by the Spanish banks and their capital to assets ratio, explain credit risk in Spain both in the short and the long run
Has accelerated the interaction between banking and the among all variables included in the model, the real GDP (LGDP), the Spanish long-term government bond yield (LTGB), the total credit granted by the Spanish banks (LCRE), the return on equity (ROE) and the capital to assets ratio (CAP) affect nonperforming loans in the Spanish banking system
Summary
The strong belief that financial distress may contract economic growth, has inspired academics to investigate those factors that may trigger a banking crisis (Agnello et al 2011; Chaibi and Ftiti 2015; Islami and Kurz-Kim, 2014). Makri et al (2014) interest rates in the long run while Nikolaidou and investigated 14 Eurozone countries over the pre-crisis Vogiazas (2013) following the same approach concluded period 2000-2008; they found strong correlations that lending growth, jointly with money supply and between NPLs and various macroeconomic (public debt, unemployment, have a significant long-run impact on unemployment, GDP growth) and bank-specific Messai and Juini (2013) investigated the credit risk determinants of 85 banks of Italy, Greece and Spain over the period 20042008 They found that NPLs are negatively affected by GDP growth and the profitability of banks’ assets, whereas NPLs are positively related to the unemployment rate, the loan loss reserves to total loans and the real interest rate. A brief overview of the Spanish economy and banking system is outlined in the session
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