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Non-performing loans and bank lending: Evidence for Portugal

Authors 
Rui Silva
Ricardo Martinho
Carla Marques
Publication Year 
2020
Abstract 
This article analyses the impact of Portuguese banks’ non-performing loans (NPLs) on the loan supply to non-financial corporations in the 2009-2018 period by exploring the granularity of the Portuguese Central Credit Register. We conclude that, when controlling for loan demand and several bank characteristics, there is no evidence that NPL ratios per se constrained bank loan supply to performing corporates in this period. This result is robust to different econometric specifications and holds both for the crisis and the post crisis periods, as well as regardless of the firm size. Nonetheless, we find that the relevance of banks’ NPLs on credit supply differs according to debtors’ credit risk profile, namely that banks with higher NPL ratios granted more credit to performing high credit risk NFCs, while no differentiation was found for low and medium credit risk firms. Finally, we also explore the extensive margin of credit and find that a higher level of NPLs in banks’ balance sheet is associated, in the post crisis period, with a lower propensity to initiate new credit relationships.
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