Abstract
This paper presents a systematic literature review of 44 studies on determinants of non-performing loans (NPL) published for the period 1987 to 2017 in 30 peer-reviewed journals. The motivation for this analysis is twofold. First, the NPL-issue is attributed high relevance by policy makers such as the European Central Bank and is currently addressed with a variety of measures. Any policy response requires deep understanding of the underlying determinants. Second, availability of data in the NPL-sector expanded, allowing scholars for more sophisticated research. Presenting novel interpretation, I synthesize the literature according to three broad, yet overlapping themes: macroeconomic events, bank- and loan-specific factors. Using an open coding process, the literature is diligently analyzed in 13 subcategories. The results reveal that the interaction of loan and asset specific events with macroeconomic and bank-specific factors still lacks a deep understanding and deserves for additional empirical research.
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Notes
A detailed specification to follow in Sect. 2.
The most recent measures include a guidance paper from the European Central Bank (2017b) in March 2017, followed by an official addendum in 2018 (European Central Bank 2018); the European Commission (2017) communicated to complete the banking union, followed by a progress report and measures in (2018); the European Banking Authority (2018) published a consultation document to interested parties and announced guidelines to follow in 2019; within the European Council, the ECOFIN (2017) presented an action plan on NPL in July 2017.
Such as problem loans, distressed debt, bad loans, bad debt.
The academic journal guide Version 2015 published by the Association of Business Schools is an internationally accepted ranking based on peer review, statistical citation information, editorial and expert judgement. The guide classifies journals into four numbered categories (1-4) plus a distinction category (4*).
Formerly known as Thompson Reuter’s Web of Science.
Problem*/bad/cris* and alternatively bad debt.
Specifically, I include five IMF/ECB working papers, four papers from sources outside the ABS ranking and two early seminal papers before 1997, one of them being unrated. All sources are displayed in detail in Table 4.
Note that many articles may be classified into various categories simultaneously due to overlapping themes.
Some references from the snowball backwards search are unrated, e.g. IMF/ECB working papers. See Sect. 2 for more information.
Measure of expected price fluctuations in the S&P 500 Index.
Podpiera and Weill (2008) further present an interesting read of research outside the criteria of the sampled studies that affirm the bad management hypotheses, using similar methodology like Berger and DeYoung (1997). Namely, Williams (2004) for a large sample of European banks during 1990-1998 and Bonin et al. (2005) for a large unbalanced panel of 225 banks from eleven transition countries during 1996–2000.
Please also see Sect. 3.3.2 for further discussion of external events occurring at the loan-/debtor-level.
At the time, Kwan and Eisenbeis (1997) were only aware of an earlier 1995 working paper of Berger & DeYoung. The scholars “propose a different structural relationship between bank risk-taking and efficiency, which leads to a different methodology” (Kwan and Eisenbeis 1997, p. 118), namely the stochastic efficient frontier methodology of Aigner et al. (1977) and present results on bank capitalization (Sect. 3.2.2).
Any assertions on economics of information, such as the moral hazard hypothesis, are discussed at length during Sect. 3.2.4.
Table 4 reviews the type of NPL analyzed in each reference by either ‘aggregate’ or ‘disaggregate’ type of NPL. Disaggregate NPL are then categorized according to real estate, corporate, and consumer loans. Further, the table lists each regional origin of the investigated datasets.
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I am grateful to Professor Dirk Schiereck for helpful comments and discussion at various points in time.
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Manz, F. Determinants of non-performing loans: What do we know? A systematic review and avenues for future research. Manag Rev Q 69, 351–389 (2019). https://doi.org/10.1007/s11301-019-00156-7
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DOI: https://doi.org/10.1007/s11301-019-00156-7