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The role of non-performing loans for bank lending rates

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  • Bredl, Sebastian
Abstract
Against the backdrop of a high stock of non-performing loans (NPLs) in several European countries, this paper investigates the role of NPLs for lending rates charged for newly granted loans in the euro area. More precisely, it looks for an effect that extends beyond losses caused by that stock which have already been incorporated into the banks' capital positions. The paper focuses on the question of which channels are responsible for such a potential effect. The results indicate that a higher stock of net NPLs is associated with higher lending rates, whereby there are indications that this relation tends to be offset by loan loss reserves. Although the NPL stock affects banks' idiosyncratic funding costs as well, the latter do not seem to constitute an important link between the stock of NPLs and lending behavior. Furthermore, NPLs do not strongly affect the banks' interest rate pass-through.

Suggested Citation

  • Bredl, Sebastian, 2018. "The role of non-performing loans for bank lending rates," Discussion Papers 52/2018, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:522018
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    Cited by:

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    2. Goodhart, Charles & Kabiri, Ali, 2019. "Monetary Policy and Bank Profitability in a Low Interest Rate Environment: A Follow-up and a Rejoinder," CEPR Discussion Papers 13752, C.E.P.R. Discussion Papers.
    3. Saibal Ghosh, 2022. "Does financial interconnectedness affect monetary transmission? Evidence from India," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 15(3), pages 273-300, September.
    4. John Thornton & Caterina Di Tommaso, 2021. "The effect of non‐performing loans on credit expansion: Do capital and profitability matter? Evidence from European banks," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 4822-4839, July.
    5. Goodhart, C. A. E. & Kabiri, Ali, 2019. "Monetary policy and bank profitability in a low interest rate environment: a follow-up and a rejoinder," LSE Research Online Documents on Economics 100968, London School of Economics and Political Science, LSE Library.

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    More about this item

    Keywords

    lending rates; non-performing loans; impaired loans; funding costs;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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