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Economics in a picture

Economics in a picture

Banks’ non-performing loans (NPLs) did not have a significant impact in the supply of credit to firms between 2009 and 2018


In the wake of the international financial crisis and the sovereign debt crises there has been a pronounced and system-wide increase of non-performing loans (NPLs) with the potential to impact in banks’ credit supply and ultimately on economic growth. This is a relevant topic in many European Countries, including Portugal where, in mid-2016, the NPLs accounted for almost 18% of banks’ total loans (maximum figure recorded). 

Building on Central Credit Register granular data it can be concluded that, when controlling for loan demand and several bank characteristics, there is no evidence that NPL ratios per se constrained bank loan supply to firms in the 2009-2018 period. Put differently, on average, for a given firm, the difference in the evolution of credit granted by two banks that only differ in the level of the NPL ratio is not statistically significant. This result holds for both the crisis and the post crisis periods (2009-2015 and 2016-2018, respectively), and for firms with low and medium credit risk regardless of its size. In turn, there is evidence of a positive, although statistically weak, relation between NPLs and credit granted to performing NFCs with high credit risk. Additionally, in the post crisis period, higher NPLs seem to have been associated with a lower propensity to initiate new credit relationships with firms. Other bank characteristics impacted on credit supply, namely, their liquidity conditions and business models (proxied by the recourse to ECB funding and the share of household credit, respectively). Banks’ capital position seem to have been significant only during the crisis period. 


For further details see Marques, Martinho and Silva (2020) “Non-performing loans and bank lending: Evidence for Portugal", Banco de Portugal, Economic Studies, Vol. VI, No 1.

Prepared by Carla Marques, Ricardo Martinho and Rui Silva. The analyses, opinions and findings expressed above represent the views of the authors and not necessarily those of Banco de Portugal or the Eurosystem.


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