Determinants of NPLS Revisited: The Aftermath of Two Crises and the Case of Greece

Abstract

Building on previous research contributions on the macroeconomic determinants of NPLs, this paper aims at assessing the cumulative impact of the two recent crises which, although based on different fundamentals, both resulted in a turbulent macroeconomic environment: first, the global financial crisis originating from the US financial system in 2007 (which soon became an economic crisis culminating in a debt crisis for some countries) and then the most recent outbreak of the COVID-19 pandemic—a health crisis, albeit with very significant economic repercussions (some of which are not yet apparent, while the impact of others cannot yet be fully extrapolated). In this research endeavor we use an extended set of OECD countries for a time span of 16 years including the most recent data available (2020). Apart from evaluating the explanatory power of new variables and variables only recently introduced (and used so far only to a limited extent, such as housing prices), this model provides useful insights also on the possible directions of economic policy interventions to alleviate the impact of the most recent crisis, which is still unfolding. Using our preferred specification, we then proceed to study the case of Greece, which was the country probably hardest hit by the financial crisis, with NPLs approaching 50% of total loans. While still recovering from the previous crisis, Greece has to deal with the repercussions of the pandemic; as a result, interesting conclusions can be drawn from this specific case study.