Determinants of Non-Performing Loans in Eurozone and Non-Eurozone Countries

• Název práce v češtině: Determinanty úvěrů v selhání v EU a ostatních zemích.
• Název v anglickém jazyce: Determinants of Non-Performing Loans in Eurozone and Non-Eurozone Countries
• Akademický rok vypsání: 2017/2018
• Typ práce: diplomová práce
• Jazyk práce: angličtina
• Ústav: Institut ekonomických studií (23-IES)
• Vedoucí / školitel: prof. PhDr. Petr Teplý, Ph.D.
• Řešitel: skrytý - zadáno vedoucím/školitelem
• Datum přihlášení: 12.06.2018
• Datum zadání: 12.06.2018
• Datum a čas obhajoby: 05.02.2020 09:00
• Místo konání obhajoby: Opletalova - Opletalova 26, O206, Opletalova - místn. č. 206
• Datum odevzdání elektronické podoby: 06.01.2020
• Datum proběhlé obhajoby: 05.02.2020
• Oponenti: doc. Bc. Jiří Novák, M.Sc., Ph.D.

Zásady pro vypracování

The thesis is expected to be built in six chapters. The first chapter will mainly consist in introduction of the research topic where the core research questions, expectations and the organization of the study will be stated. The second chapter will be regarding the literature review framework. There will be a review of the previous studies conducted by different scholars on the main topic and of the variables used in the study. In the third chapter, the dataset and variables used for the analysis will be explained. During the fourth chapter, the implied methodology will be further explained in more details. Next chapter will be dedicated to the testing of the hypothesis and examination of the empirical findings. Lastly the study will be closed with a conclusion, which will provide a summary of the found results and the final answers to the research questions.

Expected Contribution:
Even though the researchers have done several studies on this topic, there is still place for a deeper analysis. This study is expected to contribute to the literature by further examining the determinants of non- performing loans in the EU. A detailed comparison of differences in determinants of NPLs in Eurozone members and Non- Eurozone members will be provided as well. The financial institutions used will be categorized into five groups: commercial banks, cooperative banks, real estate& mortgage banks, saving banks, and bank holding& holding companies. In addition, heterogeneity coming from banks size and geographic location will be taken into consideration. Finally, my thesis will contribute by including explanatory variables which will be categorized into three main groups. For a large sample of European banks, a special dataset from Orbis Bank Focus will be used.

Seznam odborné literatury

1. Accornero, M., Alessandri, P., Carpinelli, L., & Maria Sorrentino, A. (March 2017). Non-performing loans and the supply of bank credit: evidence from Italy. Banca D'Italia, No. 374.
2. Athanasoglou, P., Brissimis, S., & Delis, M. (2008 ). Bank-specific, industry-specific and macroeconomic determinants of bank profitability. Int. Fin. Markets, Inst. and Money 18 , 121- 136.
3. Fell, J., Moldovan, C., & O'Brien, E. (2017). Resolving non-performing loans: a role for securitisation. Financial Stability Review.
4. Fišerová, T., Teplý, P., & Tripe, D. (2015). The Performance of Foreign- Owned Banks in Host Country Economies. Prague Economic Papers, 2015(5), 538- 561.
5. Gilchrist, S., & Mojon, B. (2018). Credit Risk in the Euro Area. The Economic Journal, 118- 158.
6. Jabra, W., Mighri, Z., & Mansouri, F. (2017). Determinants of European bank risk during financial crisis. Cogent Economics and Finance , Volume 5, No. 1, pp. 1-20.
7. Makri, V., Tsagkanos, A., & Bellas, A. (2014). Determinants of Non-Performing Loans: The Case of Eurozone. Panoeconomicus, vol. 61(2), pages 193-206, March.

Předběžná náplň práce

Motivation:
Following the financial crisis, non- performing loans (NPLs) average has increased sharply across different banking systems. NPLs are considered as bad news for banks. NPLs consume capital, distract the attention of the banks from the core activities, increase the operating costs, decrease profitability and they may even erode the sustainability of the bank. Therefore, the aim of my thesis will be to empirically examine the causes of non-performing loans in the European banking system for the 2012-2017 period of time. Moreover, a distinguish between the banks of the selected counties by bank type (bank holding companies, commercial banks, cooperative banks, real estate & mortgage banks or savings banks) will be provided.

One of the most recent and relevant to my study is the research done in 2017 by Jabra, Mighri, & Mansouri (2017), aiming to investigate the internal and external factors of European bank risk taking during the 2005- 2015 time period. The authors observed the relationship between credit risk and regulatory characteristics (Tier 1 ratio), institutional characteristics (Political Stability and Quality of Banking Regulation), bank-specific variables (Bank Capitalization, Bank Size, Insurance Coverage, Loan Loss Provisions Ratio and Herfindahl–Hirschman Index), institutional characteristics (Political Stability and Quality of Banking Regulation) and country- specific variables (annual GDP growth and annual inflation rate). They split the sample of 26 European countries into two subsamples, consisting in East and West European countries. Finally, using GMM model the authors found out those macroeconomic and regulatory variables to significantly impact the bank risk taking, meanwhile they pointed out a different correlation between credit risk and internal and external factors in each of the samples. A lack of bank heterogeneity is observed.

Makri, Tsagkanos, & Bellas (2014) studied the determining factors of the NPLs in the Eurozone’s banking systems but he used NPL ratio as a dependent variable. The authors revealed strong correlations between NPL ratio and various macroeconomic factors such as public debt, unemployment, annual percentage growth rate of gross domestic product; and bank-specific factors such as capital adequacy ratio, rate of non-performing loans of the previous year and return on equity factors. Their study lacks the consideration of bank heterogeneity and industry- specific determinants as well. Such variables are somehow considered in Athanasoglou, Brissimis, & Delis (2008) who discuss the insignificance of bank concentration in explaining the profitability of the Greek banks. They find the ownership status to not have influence on bank profitability as well, stating that private banks do not make higher profits.

In my thesis, I will consider the impact of protracted period of low and even negative interest rates in the EU on the quality of the loans. The main sample will be split into two sub- samples, which will consist in Eurozone and Non- Eurozone countries respectively. Thus, a comparison between the samples will be provided.

Hypotheses:

1. Hypothesis #1: Macroeconomic and bank-specific variables have an effect on loan quality, and that these effects vary between Eurozone and Non- Eurozone members’ banking systems.
2. Hypothesis #2: Saving banks reported the lowest level of NPLs in both Eurozone and Non- Eurozone countries.
3. Hypothesis #3: Market specific variables are negatively correlated to the quality of loans.
4. Hypothesis #4: The prolonged environment of low interest rates increased all type of banks’ NPLs level.

Methodology:
In order to test the hypothesis and provide a good assessment on the topic random effects, fixed effects or GMM methodology will be utilized. For writing the thesis, the BankScope database will be the primary data source. Additionally, available data from the database of Eurostat and ECB will be used. Due to lack of data, loan impairment charges to average gross loans will be used as a proxy for non- performing loan ratio, which will be the dependent variable in the model. The determinants of non- performing loans will include bank-specific characteristic, sector- specific variables as well as country- specific factors. Bank specific variables will cover possible effects of heterogeneity coming from bank size and other features of banking system. Sector- specific variables will cover the possible correlation between bank’s business model and NPLs. Country specific variables will mainly cover macroeconomic factors which lead to bank heterogeneity across the countries. The final dataset will be a balanced panel covering the six- year period from 2012 to 2017.

Předběžná náplň práce v anglickém jazyce

The thesis is expected to be built in six chapters. The first chapter will mainly consist in introduction of the research topic where the core research questions, expectations and the organization of the study will be stated. The second chapter will be regarding the literature review framework. There will be a review of the previous studies conducted by different scholars on the main topic and of the variables used in the study. In the third chapter, the dataset and variables used for the analysis will be explained. During the fourth chapter, the implied methodology will be further explained in more details. Next chapter will be dedicated to the testing of the hypothesis and examination of the empirical findings. Lastly the study will be closed with a conclusion, which will provide a summary of the found results and the final answers to the research questions.