Journal of Business Accounting and Finance Perspectives

(ISSN: 2603 7475) Open Access Journal
JBAFP 2020, 2(1), 7; doi: 10.35995/jbafp2010007

Increased Uncertainty, Credit Supply, and Non-Performing Loans in the Eurozone

Received: 27 Aug 2019 / Revised: 14 Feb 2020 / Accepted: 2020-02-13 / Published: 2020-02-18
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ABSTRACT

This paper examines the role of economic uncertainty in the Eurozone countries by analyzing the credit supply and the evolution of non-performing loans following the 2008 global financial crisis. The discussion centers on how greater economic uncertainty restricts credit supply and increases the number of non-performing loans. Quarterly data for the Eurozone countries are studied for the period 2005 to 2016. To test the aforementioned hypothesis, an index of economic uncertainty for the Eurozone countries is calculated. Panel data analysis is performed using fixed effects estimation. This approach allows for individual heterogeneity, with different intercepts across countries and quarterly time dummies to control for time-specific effects that are common to all countries in the sample. The primary conclusions of the analysis are as follows: (1) When economic uncertainty increases, total gross loans decrease, and the number of non-performing loans increases. (2) When uncertainty increases, loans to deposit-takers, other domestic sectors, and general government decrease, while loans to financial corporations increase as a means of supporting the financial sector. (3) The most vulnerable Eurozone economies play a prominent role in these overall effects. In these economies, the effects of the recent global financial crisis are most pronounced, with uncertainty increasing significantly over the study period.
Keywords: credit crisis; Eurozone; loan supply; non-performing loans; uncertainty index
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).
CITE
Kostis, P.C. Increased Uncertainty, Credit Supply, and Non-Performing Loans in the Eurozone. JBAFP 2020, 2, 7.
Kostis PC. Increased Uncertainty, Credit Supply, and Non-Performing Loans in the Eurozone. Journal of Business Accounting and Finance Perspectives. 2020; 2(1):7.
Kostis, Pantelis C. 2020. "Increased Uncertainty, Credit Supply, and Non-Performing Loans in the Eurozone." JBAFP 2, no. 1: 7.
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