LOANS, GOVERNANCE INDICATORS AND SYSTEMIC LIQUIDITY RISK: EVIDENCE FROM GREECE
Athens University of Economics and Business and Alpha
Bank of Greece
Athens University of Economics and Business
In this study we propose a
new determinant of non-performing loans for the case of the Greek banking sector.
We employ aggregate yearly data for the period 1996-2016 and we conduct a
Principal Component Analysis for all the Worldwide Governance Indicators (WGI)
for Greece, aiming to isolate the common component and thus to create the
GOVERNANCE indicator. We find that the GOVERNANCE indicator is a significant
determinant of Greek banks’ non-performing loans indicating that both political
and governance factors impact on the level of the Greek non-performing loans.
An additional variable that also has a statistically significant impact on the
level of Greek non-performing loans, when combined with WGI in the dynamic
specification of our model, is systemic liquidity risk. Our results could be of
interest to policy makers and regulators as a macro prudential policy tool.
Keywords: Credit risk; Greek
banking sector; Non-performing loans; Systemic liquidity risk; Worldwide
JEL Classification: C51,
G21, G2, G38.
Acknowledgments: We would like to thank Heather
Gibson, Chrysovalantis Gaganis, Fotios Pasiouras and Panagiotis Politsidis for
their helpful advice on an earlier version of this paper. The views and
opinions expressed herein are those of the authors and do not necessarily
represent or reflect the views of Alpha Bank and/or Bank of Greece.
Economic Analysis and Research Department
Bank of Greece
21 El. Venizelos Av., 10250 Athens, Greece