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NON-PERFORMING LOANS, GOVERNANCE INDICATORS AND SYSTEMIC LIQUIDITY RISK: EVIDENCE FROM GREECE

 

 

Dimitrios Anastasiou

Athens University of Economics and Business and Alpha Bank

 

Zacharias Bragoudakis

Bank of Greece

 

Ioannis Malandrakis

Athens University of Economics and Business

 

Abstract

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 Governance Indicators.

 

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.

 

 

Correspondence:

Zacharias Bragoudakis

Economic Analysis and Research Department

Bank of Greece

21 El. Venizelos Av., 10250 Athens, Greece

Tel.:0030-210-3203605

Fax: 0030-210-3202432

Email: zbragoudakis@bankofgreece.gr

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