What Causes Non-Performing Loans? The Case of Greece Using Primary Accounting Data

Abstract

In this paper we study the effect of independent variables in identifying non-performing loans during crisis period, using a binomial logistic regression. We use a unique data of 2591 loans granted by one of the four systemic banks of Greece in 2005. Specifically we study a sample of loans granted to micro and small enterprises in order to cover working capital needs. Νon-performing loans dramatically increased as the recession of Greek economy deepens. Moreover we prove that in general the variables still affect in the same way the creation of non-performing loans during the studied period. Particularly, binomial logistic regression shows a positive correlation between non-performing loans and factors “Adverse”, “Age” and “LTT”. In contrast, we find a negative correlation between the probability of classifying a loan as non-performing and the independent variables “Collateral”, “Own Facilities”, “Property”, “Residence” and “Years of operation”. Finally the predicted performance of the binomial logistic regression reduced as the crisis deepens.