Abstract
The issue of banks’ loan quality has assumed growing importance at the international level. This study aims to tackle the issue and to verify the impact of bank-specific determinants and macroeconomic indicators on banks’ loan quality. 
 
 The analysis is conducted on a sample of 2,816 European banks over the period 2011-2015 through a multivariate regression with panel data. 
 
 The main evidence shows that a higher return on average assets and a greater soundness of the bank can be associated with a better loan quality. Furthermore, the results also demonstrate that system conditions can contribute to determining banks’ asset quality. Adverse cyclical conditions, resulting from a lower GDP growth and a higher unemployment rate, can generate a lower loan quality.
Highlights
The issue of banks’ loan quality has been broadly debated at the international level and has aroused great interest among experts in the financial industry, with the worsening of the financial crisis.Studies have given particular attention to the relationships between bank-specific determinants and macroeconomic determinants and banks’ credit quality
The study shows that non-performing loans are sensitive to bank-specific factors, as the analysis indicates that higher profitability contributes to lower NPLs
This study has investigated the existence of significant relationships between loan quality and the incidence of doubtful loans on the balance sheets of European banks and bank profitability, soundness and size
Summary
The issue of banks’ loan quality has been broadly debated at the international level and has aroused great interest among experts in the financial industry, with the worsening of the financial crisis. Studies have given particular attention to the relationships between bank-specific determinants and macroeconomic determinants and banks’ credit quality. The connection between macroeconomic conditions and banks’ credit has been underlined by empirical evidence. Empirical studies demonstrate that favourable macroeconomic conditions, such as sustained economic growth, low unemployment and low interest rates, tend to be associated with a better banks’ loan quality. Bank-specific variables related to financial features and management policies are of great importance
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