| By: |
Marcello Bofondi (Banca d'Italia);
Tiziano Ropele (Banca d'Italia) |
| Abstract: |
In this paper we use a single-equation time series approach to examine the
macroeconomic determinants of banks’ loan quality in Italy in the past
twenty years, as measured by the ratio of new bad loans to the outstanding
amount of loans in the previous period. We analyse the quality of loans to
households and firms separately on the grounds that macroeconomic variables
may affect these two classes of borrowers differently. According to our
estimated models: i) the quality of lending to households and firms can be
explained by a small number of macroeconomic variables mainly relating to the
general state of the economy, the cost of borrowing and the burden of debt;
ii) changes in macroeconomic conditions generally affect loan quality with a
lag; and iii) the out-of-sample prediction accuracy of the models is quite
satisfactory and proved to be robust to the recent financial crisis. |
| Keywords: |
bad loans, macroeconomic determinants, Italian banking system |
| JEL: |
G21 C22 |
| Date: |
2011–03 |
| URL: |
http://d.repec.org/n?u=RePEc:bdi:opques:qef_89_11&r=cfn |