Non-performing loans in the euro area: Does bank market power matter?

Abstract

In this study, we investigate the impact of bank market power on the change in NPL ratios in the euro area over the period 2005–2017 by employing a penalized quantile regression model for dynamic panel data. The results suggest that post-crisis consolidation facilitates the faster reduction of NPLs, especially in the euro area periphery countries, while competition discourages the growth of new NPLs. In addition, the presence of foreign banks is beneficial on its own and with respect to containing market power effects. Finally, while commercial banks create more NPLs, market power plays a moderating role.