COVID-19 and Non-Performing Loans in Europe

Abstract

This study investigates the impact of COVID-19 on the non-performing loans (NPLs) in Europe, distinguishing by European subregion, country-level prosperity, NPL type, and NPL economic sector. We utilized panel data analysis covering the period 2015Q1–2021Q4 while controlling for macro, bank-specific, and regulatory indicators. We derived that the COVID-19 deaths and the strictness of lockdown measures positively affected the NPLs, while the economic support policies exerted a negative effect. Profitable, capitalized banks fared better. The strictness of lockdown measures hindered the ability of SMEs to repay their loans, increasing their NPLs. Sectors involving physical work-related activities also experienced an increase in their NPLs. We also deduced that bank securitization and national culture significantly contributed to NPL reduction.