Non-performing Loans: A Review of the Literature and the International Experience

Abstract

The chapter presents a thorough overview of the determinants of non-performing loans. A major claim in the literature is that the deregulation of the banking system over the past few decades has led to both increased bank competition and credit risk. There are two main streams in the literature that examine the determinants of bad loans: the first accepts the perspective that the macroeconomic environment influences credit risk; the second adopts the viewpoint that credit risk is affected by bank-specific factors. Recent empirical evidence highlights the importance of both macroeconomic and bank-related factors but also the significance of other influences related to the broader legal and regulatory environment, in explaining the evolution of credit risk.