MACROECONOMIC DETERMINANTS OF NPLS IN EU: A PANEL DATA ANALYSIS (2010–2023)

Abstract

Non-performing loans (NPLs) present a significant risk to the banking systems, and become worse during periods of economic turmoil. This study aims to identify and quantify the macroeconomic determinants influencing non-performing loans in EU member states, using annual panel data from 2010 to 2023. A Pooled Ordinary Least Squares regression approach along with robust and cluster-robust standard errors are utilized to assess the effects of GDP growth, unemployment rate, and inflation on NPL ratios. The findings indicate that unemployment is the strongest factor affecting NPLs. GDP growth is positively connected with NPLs, contrary to prevailing expectations, suggesting that economic expansion might encourage over-leveraging. Inflation has no statistically significant effect, while NPL ratios tend to rise during recessions. The study highlights the importance of macroeconomic stability for protecting financial systems.