Published in STUDIES

K. Loizos. 2022. | ISBN: 978-960-341-130-7

Cover Meleti 84 LOW-200-294


Non-performing loans (NPLs) are a predominant feature of an economy passing through financial and fiscal crisis, on the one hand, and recession in the real economy on the other. This was the situation in the Greek economy during the second decade of the 2000s, which left as its legacy the yet unresolved problem of NPLs. 


In the present study, we approach this issue in two respects. The first part of this study is preoccupied with delineating recent literature on the NPL issue. However, concerning the empirical research, the focus is on the Greek case. Through such a review, both theoretical and empirical problems are clarified, along with the related policy challenges to solve them. In the second part of this study, we use the available time series data of basic macroeconomic variables in the Greek economy along with aggregated banking data for the period 2002Q4 – 2019Q1. Econometric estimations are based on Vector Error Correction Models (VECM). We estimate overall three models corresponding to the three categories of NPLs, i.e., business, consumer and mortgages. Our findings support the significant positive relationship between the unemployment rate and NPLs. Statistically significant coefficients also characterize the relationships between NPLs and the fiscal variables of the government budget balance and public debt, though without a consistent sign. Finally, our findings confirm the existence of a positive, statistically significant relationship between NPLs and the capital adequacy of banks.


The major conclusion that can be drawn from these results is the multiplicity of dimensions that should characterize a successful solution to the NPL problem in the Greek economy. This relates, on the one hand, to policies that would ameliorate conditions in the real economy by exploiting new credit channels or by improving the existing ones. On the other hand, this might also relate to initiatives that enhance the financial health of banks and improve conditions in the financial markets and the relations between lenders and borrowers. Such initiatives, we argue, are those of the government (“Hercules” plan) and of the Bank of Greece to reduce NPLs, the establishment of the Hellenic Development Bank and the new bankruptcy law that improves the relevant legal framework. This study concludes by pointing out certain directions for future research both at the institutional and behavioral level, to the degree that the particular institutional conditions in each country, the comparisons with the European and international experiences and the factors that determine the behaviour of financial markets’ participants, enrich the findings of the present study.

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